| • | | Aluminum Products segment. This segment sells non-automotive aluminum, zinc and magnesium die castings and new and refurbished dies (also known as molds or tools) for all types and sizes of die casting machines. It also provides machining, coating, finishing, sub-assembly and other value-added services for die cast components. These products and services areAluminum Products segment. We divested this segment in July 2008. It produced and sold non-automotive aluminum, zinc and magnesium die castings, and new and refurbished dies (also known as molds or tools) for all types and sizes of die casting machines. It also provided machining, coating, finishing, sub-assembly and other value-added services for die cast components. These products and services were sold or provided, to (i) small engine and diesel engine builders; (ii) motorcycle, off-road and recreational vehicle, truck and automobile makers; (iii) manufacturers of outdoor lighting fixtures, cable line amplifiers, wireless communications systems, and other cable and telecommunication products; (iv) consumer appliance and power tool manufacturers; (v) producers of electric motors, computers and electronics; (vi) gas barbeque grill manufacturers; and (vii) die cast manufacturers. Prime Foam Products unit, Wood Products unit, Fibers unit and the Coated Fabrics unit (each previously reported in the Residential Furnishings segment). | (i) | We divested the Prime Foam Products unit in the first quarter of 2007. It primarily produced commodity foam used for cushioning by bedding and upholstered furniture manufacturers. |
| | •(ii) | | We divested the Wood Products unit and Fibers unit. The Wood Products unit sellsin the third quarter of 2008. It sold wood frames and cut-to-size dimension lumber to bedding manufacturers. The |
| (iii) | We divested the Fibers unit sellsin the fourth quarter of 2008. It sold fiber cushioning material primarily to bedding and upholstered furniture manufacturers. These units were previously reported in the Residential Furnishings segment. |
| | •(iv) | The Coated Fabrics unit sells non-slip rug underlay and shelf liners primarily to retailers and distributors. This divestiture has not yet been completed. |
Plastics unit and the Storage Products unit (each previously reported in the Commercial Fixturing & Components segment). | | Storage Products(i)
| The Plastics unit, which was divested in the third quarter of 2008, sold injection molded plastic components primarily for manufacturers of lawn care equipment and Plastics unit.power tools. |
| (ii) | The Storage Products unit sells storage racks and carts used in the food service and healthcare industries. The Plastics unit sells injection molded plastic components primarily for manufacturers of lawn care equipment, power tools and office furniture products. These units were previously reported in the Commercial Fixturing & Components segment.This divestiture has not yet been completed. |
PART I | | • | | Dealer portion of the Commercial Vehicle Products unit and anAn automotive seating components operation. Theoperation and the dealer portion of the Commercial Vehicle Products unit sells(each previously reported in the Specialized Products segment).
|
| (i) | The automotive seating components operation, which we divested in the first quarter of 2008, sold welded assemblies, and wire and tubular frames for automotive seating. |
| (ii) | We divested the dealer portion of the Commercial Vehicle Products unit in the third quarter of 2008. It sold truck bodies for cargo vans, flatbed trucks, service trucks and dump trucks primarily to end-users of light-to-medium duty commercial trucks. The automotive seating components operation sells welded assemblies, and wire and tubular frames for automotive seating to automotive manufacturers. Each was previously reported in the Specialized Products segment. |
Also, in the first quarter of 2007 we sold our Prime Foam Products business unit. This unit primarily produced commodity foam used for cushioning by bedding and upholstered furniture manufacturers. Our former Prime Foam Products unit was previously reported in the Residential Furnishings segment and has been classified as a discontinued operation.
For further information on discontinued operations, see Note B on page 6688 of the Notes to Consolidated Financial Statements. Item 1A.Risk Factors.Factors. Investing in our securities involves risk. Set forth below and elsewhere in this report are risks and uncertaintiesrisk factors that could cause actual results to differ materially from the results contemplated by the forward-looking and other statements contained in this report. We may amend or supplement these risk factors from time to time by other reports we file with the SEC in the future. Our 2007 Strategic Plan may not produce the benefits expected.
In November 2007, the Company adopted the 2007 Strategic Plan. There is no guarantee that we will be able to implement the 2007 Strategic Plan on terms and conditions that are favorable to us. The timing of the implementation may be longer than expected. We may not be able to complete the planned divestitures on terms
favorable to us. We may also experience a negative impact from our employees, customers and vendors. As such, the 2007 Strategic Plan may not produce the benefits expected by the Company. These setbacks could adversely affect our financial condition, results of operations, cash flow from operations and the value of our common stock.
Costs of raw materials could adversely affect our operating results.
Raw material cost increases (and our ability to respond to cost increases through selling price increases) can significantly impact our earnings. We typically have short-term commitments from our suppliers; therefore, our raw material costs move with the market.
When we experience significant increases in raw material costs, we often attempt to implement price increases to recover the higher costs. We encounter greater difficulty in implementing these price increases in businesses where we have a smaller market share and in products that are of a commodity nature. Inability to recover cost increases (or a delay in the recovery time) can negatively impact our earnings.
Steel is our most significant raw material. In late 2007, we began seeing higher steel costs which are continuing into early 2008. The global steel and scrap markets are very cyclical in nature, and can result in large swings in margins from year-to-year.
Our operations can also be impacted by the cost of other raw materials. In 2006, the cost of foam scrap increased steadily with the overall cost doubling from the prices at the end of 2005. In 2007, the cost of foam scrap decreased significantly. Since our carpet underlay selling prices are tied to the cost of foam scrap, this cost decrease has impacted, and may continue to negatively impact, our reported amount of carpet underlay sales.
Higher raw material costs led some of our customers to modify their product designs, changing the quantity and mix of our components in their finished goods. In some cases, higher cost components were replaced with lower cost components. This has primarily impacted our Residential Furnishings and Industrial Materials product mix and decreased profit margins. This trend could further negatively impact our results of operations.SEC.
We have exposure to economic and other factors that may affect market demand for our products. As a supplier of products to a variety of industries, we are adversely affected by general economic downturns. Our operating performance is heavily influenced by market demand for our components and products. Market demand for the majority of our products is most heavily influenced by consumer confidence. To a lesser extent, market demand is impacted by other broad economic factors, including disposable income levels, employment levels, housing turnover, energy costs and interest rates. All of these factors influence consumer spending on durable goods, and therefore drive demand for our components and products. Some of these factors also influence business spending on facilities and equipment, which impacts approximately one quarter of our sales. Significant Demand weakness in the U.S. home-related, retail, and other markets has led to lower unit order activity, sales and earnings in our businesses. Several factors, including a weak U.S. economy, higher energy costs, a depressed housing market, and low consumer confidence contributed to conservative spending habits by U.S. consumers. Late in the third quarter of 2008, our markets weakened appreciably as consumers further reined in spending during this period of credit concerns and stock market volatility. Short lead times in most of our markets allow for limited long-term visibility into demand trends; however, we currently expect market demand to be soft in 2009. If economic and market conditions remain uncertain or deteriorate further, we may experience material negative impacts on our business, financial condition, operating cash flows and results of operations. PART I U.S. and global financial and credit market volatility could adversely affect our financial position, results of operations, cash flows and liquidity. We continue to monitor our financial position, results of operations, cash flows and liquidity in light of the recent distress in the financial and credit markets. Further changes in the financial or credit markets could adversely affect us in several different areas as discussed below. Due to the recent tightening of credit markets and concerns regarding the availability of credit, our customers may be delayed in obtaining, or may not be able to obtain, necessary cash for their purchases. Additionally, our suppliers could be negatively impacted by the current credit and financial market conditions causing delays in product deliveries to us. These delays could negatively impact our customers’ and/or suppliers’ ability to conduct business and could adversely affect our unit volume and revenues, and therefore harm our business, financial condition, results of operations, cash flows and liquidity. Recent deterioration in the securities markets has also impacted asset values of our defined benefit plans. Plan assets and liabilities are measured at December 31 of each year. At December 31, 2008, our defined benefit plans were under-funded by approximately $29 million, which represented 13% of the plans’ benefit obligations. Changes in the value of plan assets did not have an impact on the 2008 income statement, however reduced benefit plan assets will result in increased costs in 2009 and may increase the amount or accelerate the timing of required future funding contributions. Cash equivalents, short-term investments and derivative financial instruments are subject to market value and counterparty risks. Changes in the fair value of these economic factorsitems may adversely impact our financial position, results of operations, cash flows and liquidity. These balances could also be impacted if the counterparties are unable to meet their commitments in accordance with the terms of agreements. Costs of raw materials could adversely affect our operating results. Raw material cost increases (and our ability to respond to cost increases through selling price increases) can significantly impact our earnings. We typically have short-term commitments from our suppliers; therefore, our raw material costs move with the market. Steel is our most significant raw material. In late 2007 we began seeing higher steel costs, and further increases occurred in 2008. The global steel markets are very cyclical in nature, and can result in large swings in pricing and margins from year to year. Our operations can also be impacted by changes in the cost of foam scrap. We experienced significant fluctuations in the cost of this commodity in recent years. When we experience significant increases in raw material costs, we implement price increases to recover the higher costs. Inability to recover cost increases (or a delay in the recovery time) can negatively impact our earnings. Also, higher raw material costs led some of our customers to modify their product designs, changing the quantity and mix of our components in their finished goods. In some PART I cases, higher cost components were replaced with lower cost components. This has primarily impacted our Residential Furnishings and Industrial Materials product mix and decreased profit margins. This trend could further negatively impact our results of operations. Our debt instrument ratings may be further downgraded which will increase our cost of borrowing, reduce our ability to issue commercial paper and may negatively impact our liquidity. We have maintained a debt rating in the demand“A” category (from Moody’s and Standard and Poor’s) on our term notes and public debt for our productsover a decade. On November 12, 2008, Moody’s downgraded the Company’s long term debt rating from “A2” to “A3” and our resultscommercial paper rating from “P1” to “P2” citing accelerating contraction in residential and automotive related consumer spending. Also, on November 25, 2008, S&P downgraded the Company’s long-term corporate credit and senior unsecured debt ratings from “A” to “A-” and our short-term and commercial paper ratings from “A-1” to “A-2” citing weak market conditions and financial policies that include a high dividend payout and share repurchases. In addition, both Moody’s and S&P assigned a negative outlook to each of operations.their respective ratings. If the rating agencies were to further downgrade our debt instruments, this may have a negative effect on our cost of borrowing, our ability to issue commercial paper and ultimately on our liquidity. For further information regarding our debt ratings refer to page 58. We may not be able to realize deferred tax assets on our balance sheet depending upon the amount and source of future taxable income. Our ability to realize deferred tax assets on our balance sheet is dependent upon the amount and source of future taxable income. Continued economic uncertainty could change our underlying assumptions on which valuation reserves are established and negatively affect future period earnings and balance sheets. Asian competition could adversely affect our operating results. We operate in markets that are highly competitive. We believe that most companies in our lines of business compete primarily on price, but, depending upon the particular product, we experience competition based on quality, performance and availability as well. We face increasing pressure from foreign competitors as some of our customers source a portion of their components and finished productproducts from Asia. If we are unable to purchase key raw materials, such as steel, at prices competitive with those of foreign suppliers, our ability to maintain market share and profit margins could be harmed. If our customers move production of their finished products overseas, we believe that our operations must be located nearby to supply them efficiently. At December 31, 2007, we operated 12 facilities in China. If demand in China (and other foreign countries) increases at a more rapid rate than we are able to establish operations, our market share and results of operations could be negatively impacted.
Also, we have experienced increased price competition in the U.S. from foreign bedding component manufacturers. If this price competition continues we could lose further market share and our earnings could continue to be negatively impacted.
We may not be able to improve operating results in the Store Fixtures business unit.
The Store Fixtures business unit in our Commercial Fixturing & Components segment has been placed in the “Fix” category as a result of our 2007 Strategic Plan and given a 12 month deadline by which to improve performance. Factors within the Company’s control could contribute to increased margins and earnings improvements in this unit. These factors include, but are not limited to addressing performance issues at underperforming facilities, and purchasing, pricing and continuous improvement initiatives. We have initiated restructuring in the Store Fixtures business unit which includes the elimination of approximately $100 million of the unit’s least profitable revenue. However, through this restructuring activity we may not achieve the margin and earnings improvements that we anticipate. The Store Fixtures business unit is part of the Fixture & Display group, which incurred goodwill impairment charges of $143 million for the year ended December 31, 2007.
Our long-lived assets are subject to potential asset impairment. A significant portion of our assets consist of goodwill and other intangible assets, the carrying value of which may be reduced if we determine that those assets are impaired. At December 31, 2007,2008, goodwill and other intangible assets not held for sale represented approximately $1.2$1.07 billion, or 29%approximately 34% of our total assets. In addition, net property, plant and equipment, sundry assets and non-current assets held for sale totaled approximately $1,075$782 million, or approximately 26%25% of total assets. PART I Goodwill is assessedWe review for potential goodwill impairment annually,on an annual basis as part of our goodwill impairment testing in the second quarter of each year, and as triggering events may occur. Othermore often, if an event or circumstance occurs making it likely that impairment exists. In addition, we test for the recoverability of long-lived assets are tested for recoverability whenever eventsat year end, and more often if an event or circumstances indicatecircumstance indicates the carrying value may not be recoverable. We conduct impairment testing based on our current business strategy in light of present industry and economic conditions, as well as future expectations. In the fourth quarter of 2007, we conducted interim impairment testing as a result of the changes announced with the 2007 Strategic Plan and determined that some long-lived assets were impaired. For the year ended December 31, 2007, we incurred goodwill impairment of $243 million, and long-lived asset impairment of $44 million. If our business units do not perform as expected we may be required to recognize additional, material reductions in our net income caused by the impairment of long-lived assets.
Also, asThe annual goodwill impairment review performed in June 2008 indicated no goodwill impairments. As a result of December 31, 2007 the Company had $481deterioration in the economic and financial climate in the fourth quarter of 2008, interim goodwill and other long-lived asset impairment analyses were performed in the fourth quarter. The goodwill analysis confirmed that fair values exceeded carrying value for all reporting units. Future cash flow assumptions were reduced to reflect lower sales and production levels for 2009 and 2010, returning to historical levels thereafter. Other long-lived asset impairment charges of $12 million were recorded in the fourth quarter 2008.
Throughout 2008, we recorded $26 million of net assets classified asgoodwill and $6 million of other long-lived asset impairments related to businesses held for sale as updated estimates of which $15 million represented assets not associated with the 2007 Strategic Plan. fair value less costs to sell became more certain. If the proceeds generatedactual results differ from estimates used in these divestitures do not recover their carrying value,calculations, the Company will be required to recognize losses on the sale of these assets to the extent of the shortfall.could incur future (unanticipated) impairment charges. We are exposed to foreign currency risk. We expect that international sales will continue to represent a significant percentage of our total sales, which exposes us to currency exchange rate fluctuations. In 2007,2008, 26% of our sales from continuing operations was generated by international operations. The revenues and expenses of our foreign operations are generally denominated in local currencies; however, certain of our operations experience currency-related gains and losses where sales or purchases are denominated in currencies other than their local currency. Further, our competitive position may be affected by the relative strength of the currencies in countries where our products are sold. We cannot predict whether foreignForeign currency exchange risks inherent in doing business in foreign countries willmay have a material adverse effect on our future operations and financial results. Item 1B.Unresolved Staff Comments. None. Item 2.Properties. Properties. The Company’s corporate headquarters are located in Carthage, Missouri. At December 31, 2007,2008, we had 312270 production, warehouse, sales and administrative facilities associated with continuing operations, of which 230196 were disbursed across the United States and 8274 were located in foreign countries. PART I Properties by Location and Segment in Continuing Operations | | | | | | Subtotals by Segment
| | | | Subtotals by Segment
| Locations
| | Company-
Wide
| | Residential
Furnishings
| | Commercial
Fixturing &
Components
| | Industrial
Materials
| | Specialized
Products
| | Company-
Wide
| | Residential
Furnishings
| | Commercial
Fixturing &
Components
| | Industrial
Materials
| | Specialized
Products
| United States | | 230 | | 139 | | 38 | | 26 | | 27 | | 196 | | 118 | | 27 | | 28 | | 23 | Canada | | 20 | | 7 | | 7 | | 0 | | 6 | | 14 | | 6 | | 3 | | 0 | | 5 | Mexico | | 10 | | 5 | | 1 | | 2 | | 2 | | 8 | | 2 | | 1 | | 2 | | 3 | Europe | | 27 | | 14 | | 3 | | 0 | | 10 | | 17 | | 5 | | 3 | | 0 | | 9 | Asia | | 17 | | 9 | | 0 | | 1 | | 7 | | 25 | | 12 | | 4 | | 1 | | 8 | Other | | 8 | | 8 | | 0 | | 0 | | 0 | | 10 | | 10 | | 0 | | 0 | | 0 | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Total | | 312 | | 182 | | 49 | | 29 | | 52 | | 270 | | 153 | | 38 | | 31 | | 48 |
Properties by Use and Segment in Continuing Operations | | | | | | Subtotals by Segment
| | | | Subtotals by Segment
| Use
| | Company-
Wide
| | Residential
Furnishings
| | Commercial
Fixturing &
Components
| | Industrial
Materials
| | Specialized
Products
| | Company-
Wide
| | Residential
Furnishings
| | Commercial
Fixturing &
Components
| | Industrial
Materials
| | Specialized
Products
| Production* | | 190 | | 107 | | 32 | | 17 | | 34 | | Production1 | | | 167 | | 87 | | 28 | | 19 | | 33 | Warehouse | | 78 | | 50 | | 12 | | 6 | | 10 | | 65 | | 43 | | 6 | | 7 | | 9 | Sales | | 16 | | 12 | | 0 | | 1 | | 3 | | 10 | | 8 | | 0 | | 1 | | 1 | Administration | | 28 | | 13 | | 5 | | 5 | | 5 | | 28 | | 15 | | 4 | | 4 | | 5 | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Total | | 312 | | 182 | | 49 | | 29 | | 52 | | 270 | | 153 | | 38 | | 31 | | 48 |
*1 | Includes some multi-purpose facilities with additional warehouse, sales and/or administrative uses. |
Our most important physical properties are our production plants. The Company owns about 75%approximately 80% of the production facilities accounting for the majority of our consolidated sales.sales from continuing operations. We lease many of our production, warehouse and other facilities on terms that vary by lease (including purchase options, renewals and maintenance costs). For additional information regarding lease obligations, see Note K on page 79104 of the Notes to Consolidated Financial Statements. In the opinion of management the Company’s owned and leased facilities are suitable and adequate for the manufacture, assembly and distribution of our products. Our properties are located to allow quick and efficient delivery of products and services to our diverse customer base. Our productive capacity associated with continuing operations, in general, continues to exceed current operating levels. Capacity levels are somewhat flexible based on the number of shifts operated and on the number of overtime hours worked. At December 31, 20072008 we had 8712 production, warehouse, sales and administrative facilities classified as discontinued operations, of which 7810 were in the United States and 92 were located in foreign countries. Current PART I
Properties by Location and Segment Classified as Discontinued Operations | | | | | | Subtotals by Segment
| | | | Subtotals by Segment
| Locations
| | Company-
Wide
| | Residential
Furnishings
| | Commercial
Fixturing &
Components
| | Aluminum
Products
| | Specialized
Products
| | Company-
Wide
| | Residential
Furnishings
| | Commercial
Fixturing &
Components
| United States | | 78 | | 21 | | 11 | | 32 | | 14 | | 10 | | 2 | | 8 | Canada | | 6 | | 5 | | 1 | | 0 | | 0 | | 1 | | 0 | | 1 | Mexico | | 3 | | 0 | | 1 | | 2 | | 0 | | 1 | | 0 | | 1 | | | |
| |
| |
| |
| |
| |
| |
| |
| Total | | 87 | | 26 | | 13 | | 34 | | 14 | | 12 | | 2 | | 10 |
Current Properties by Use and Segment Classified as
Discontinued Operations | | | | | | Subtotals by Segment
| | | | Subtotals by Segment
| Use
| | Company-
Wide
| | Residential
Furnishings
| | Commercial
Fixturing &
Components
| | Aluminum
Products
| | Specialized
Products
| | Company-
Wide
| | Residential
Furnishings
| | Commercial
Fixturing &
Components
| Production* | | 55 | | 12 | | 10 | | 21 | | 12 | | Production1 | | | 8 | | 1 | | 7 | Warehouse | | 29 | | 13 | | 2 | | 12 | | 2 | | 2 | | 0 | | 2 | Sales | | 1 | | 0 | | 1 | | 0 | | 0 | | 2 | | 1 | | 1 | Administration | | 2 | | 1 | | 0 | | 1 | | 0 | | 0 | | 0 | | 0 | | | |
| |
| |
| |
| |
| |
| |
| |
| Total | | 87 | | 26 | | 13 | | 34 | | 14 | | 12 | | 2 | | 10 |
*1 | Includes some multi-purpose facilities with additional warehouse, sales and/or administrative uses. |
Item 3.Legal ProceedingsProceedings.. Anti-dumping Petition On December 31, 2007, the Company filed petitionsa petition with the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) alleging that manufacturers of uncovered innersprings in China, South Africa and Vietnam arewere unfairly selling their products in the United States at less than fair value (“dumping”). and causing material injury to U.S. innerspring producers. The ITC has made a preliminary determination of material injury to the domestic innerspring industry in this case andcase. On July 31, 2008, the DOC has begun its investigation into our dumping allegations. Ifannounced preliminary duties on innersprings imported from these three countries (ranging from 116% to 234%) and instructed the U.S. Customs and Border Protection to collect a cash deposit or bond on any ongoing imports. On October 15, 2008 the DOC determines thatannounced final dumping is presentduties on innersprings from South Africa at 121% and from Vietnam at 116%. On November 11, 2008, the ITC reaches amade affirmative final determinationdeterminations that imports from South Africa and Vietnam caused material injury to the U.S. innerspring industry. On December 22, 2008, the DOC announced final dumping duties on innersprings from China at 164% to 234%, and on January 27, 2009, the ITC made final determinations that the domestic innerspring industry has been materially injured by this unfair trade practice, the U.S. government will impose duties on uncovered innersprings imported from China, South AfricaChina. PART I As a result of these final determinations, the U.S. Customs and VietnamBorder Protection will collect antidumping duties on these imports at the dumping rate determinedabove rates. The antidumping orders will remain in force for at least 5 years. Shareholder Claim On February 5, 2009, a shareholder derivative complaint was filed by the DOC. No assurance can be givenNew England Carpenters Pension Fund, which represented that these determinations will be made,it owns 3,000 shares of Leggett stock, in the Circuit Court of Jasper County, Missouri. The complaint is substantially similar to a lawsuit filed by the New England Carpenters Pension Fund in federal court on September 4, 2008, which the plaintiff voluntarily dismissed on September 26, 2008 without prejudice to its right to re-file. However, this new lawsuit has fewer claims and asserts no federal causes of action. The action is purportedly brought on behalf of the Company, naming it as a nominal defendant and naming as defendants certain current and former officers and directors of the Company including David S. Haffner, Karl G. Glassman, Matthew C. Flanigan, Ernest C. Jett, Harry M. Cornell, Jr., Felix E. Wright, Robert Ted Enloe, III, Richard T. Fisher, Judy C. Odom, Maurice E. Purnell, Jr., Ralph W. Clark and Michael A. Glauber. The plaintiff alleges, among other things, that the individual defendants participated in the backdating of stock options, breached fiduciary duties, will be imposedcaused or asallowed the Company to issue false and misleading financial statements and proxy statements, and sold Company stock while in possession of material non-public information. The plaintiff seeks, among other things, unspecified monetary damages against the individual defendants, certain equitable and other relief relating to the amountprofits from the alleged improper conduct, the adoption of certain Company corporate governance proposals, the imposition of a constructive trust over the defendants’ stock options and proceeds, punitive damages, the rescission of certain unexercised options, and the reimbursement of litigation costs. The plaintiff is not seeking any dutiesmonetary relief from the Company. Policies of directors and officers liability insurance are in force, subject to customary limits and exclusions. The complaint is based on a statistical analysis of stock option grants and Leggett stock prices that maywe believe is flawed. We believe this lawsuit does not take into consideration important aspects of Leggett’s stock option plans. For example, the plaintiff has noted only one set of stock option grants, made on December 30, 2005, within what we believe to be imposed.the applicable 5-year statute of limitations. These option grants were made in accordance with the Company’s Deferred Compensation Program, which (i) provided that options would be dated on the last business day of December, and (ii) was filed with the SEC on December 2, 2005 setting out the pricing mechanism well before the grant date. We provided plaintiff’s counsel with this publicly available documentation before they dismissed the prior federal court lawsuit. The Company expects that the outcome of this litigation will not have a material adverse effect on its financial condition, operating cash flows or results of operations. For additional information regarding contingencies, please refer to Note P on page 122 of the Notes to Consolidated Financial Statements. Item 4.Submission of Matters to a Vote of Security Holders. Not applicable. PART I Supplemental Item.Executive Officers of the Registrant. The following information is included in accordance with the provisions of Part III, Item 10 of Form 10-K and Item 401(b) of Regulation S-K. The table below sets forth the names, ages and positions of all executive officers of the Company. Executive officers are normally appointed annually by the Board of Directors. | | | | | Name
| | Age
| | Position
| David S. Haffner | | 5556 | | President and Chief Executive Officer | Karl G. Glassman | | 4950 | | Executive Vice President and Chief Operating Officer | Jack D. Crusa | | 5354 | | Senior Vice President, and President—Specialized Products | Joseph D. Downes, Jr. | | 6364 | | Senior Vice President, and President—Industrial Materials | Matthew C. Flanigan | | 4647 | | Senior Vice President and Chief Financial Officer | Paul R. Hauser | | 5657 | | Senior Vice President, and President—Residential Furnishings | Daniel R. Hebert
| | 64 | | Senior Vice President and President—Aluminum Products
| Ernest C. Jett | | 6263 | | Senior Vice President, General Counsel and Secretary | Dennis S. Park | | 5354 | | Senior Vice President, and President—Commercial Fixturing & Components | David M. DeSonier | | 50 | | Vice President—Strategy & Investor Relations | John G. Moore | | 48 | | Vice President—Corporate Affairs & Human Resources | William S. Weil | | 4950 | | Vice President, President—Corporate Controller and Chief Accounting Officer |
Subject to the employment agreements (which expire May 7, 2009) and severance benefit agreements with Messrs. Haffner and Glassman, listed as exhibits to this report,Report, the executive officers generally serve at the pleasure of the Board of Directors. David S. Haffner was appointed Chief Executive Officer in 2006 and has served as President of the Company since 2002. He served as Chief Operating Officer from 1999 to 2006 and as the Company’s Executive Vice President from 1995 to 2002. He has served the Company in other capacities since 1983. Karl G. Glassman was appointed Chief Operating Officer in 2006 and has served as Executive Vice President of the Company since 2002. He served as President of the Residential Furnishings Segment from 1999 to 2006, as Senior Vice President of the Company from 1999 to 2002 and as President of Bedding Components from 1996 to 1998. He has served the Company in other capacities since 1982. Jack D. Crusa has served the Company as Senior Vice President since 1999 and President of Specialized Products since 2003. He previously served as President of the Industrial Materials Segment from 1999 through 2004, as President of the Automotive Group from 1996 through 1999 and in various other capacities since 1986. Joseph D. Downes, Jr. was appointed Senior Vice President of the Company in 2005 and President of the Industrial Materials Segment in 2004. He previously served the Company as President of the Wire Group from 1999 to 2004 and in various other capacities since 1976. Matthew C. Flanigan has served the Company as Senior Vice President since 2005 and as Chief Financial Officer since 2003. Mr. Flanigan previously served the Company as Vice President from 2003 to 2005, as Vice President and President of the Office Furniture Components Group from 1999 to 2003 and as Staff Vice President of Operations from 1997 to 1999. PART I Paul R. Hauser became Senior Vice President of the Company in 2005 and President of the Residential Furnishings Segment in 2006. He previously served as Vice President of the Company and President of the Bedding Group from 1999 to 2006. He served in various capacities in the Company’s Bedding Group since 1980. Daniel R. Hebert became Senior Vice President of the Company and President of the Aluminum Products Segment in 2002. Mr. Hebert previously served as Executive Vice President of the Aluminum Products Segment from 2000 to 2002 and Vice President of Operations from 1996 to 2000.
Ernest C. Jett became Senior Vice President, General Counsel and Secretary in 2005. He was appointed General Counsel in 1997 and Vice President and Secretary in 1995. He previously served the Company as Assistant General Counsel from 1979 to 1995 and as Managing Director of the Legal Department from 1991 to 1997. Dennis S. Park became Senior Vice President and President of the Commercial Fixturing & Components Segment in 2006. In 2004, he was named President of the Home Furniture and Consumer Products Group and became Vice President of the Company and President of Home Furniture Components in 1996. He served the Company in various other capacities since 1977. David M. DeSonier was appointed Vice President—Strategy & Investor Relations in 2007. He served as Vice President—Investor Relations and Assistant Treasurer from 2002 to 2007. He joined the Company as Vice President—Investor Relations in 2000. Prior to his employment with Leggett & Platt, he worked for Atlantic Richfield (a major integrated oil company) from 1980 to 2000 in strategic planning, investor relations, financial management and analysis, and technical positions. John G. Moore was appointed Vice President—Corporate Affairs & Human Resources in 2008. He served as Vice President—Corporate Governance and Deputy Secretary from 2006 to 2008, as Vice President and Associate General Counsel from 2001 to 2006, and as Managing Counsel and Assistant General Counsel from 1998 to 2001. He has served the Company in other capacities since 1994. William S. Weil was appointedhas served the Company as Chief Accounting Officer by the Board of Directors insince February 2004. He became Vice President in 2000 and has served the Company as Corporate Controller since 1991. He previously served the Company in various other accounting capacities since 1983. PART II PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company’sOur common stock is listedtraded on the New York Stock Exchange (symbol LEG). The table below highlights quarterly and annual stock market information for the last two years.
| | | | Price Range
| | Volume of
Shares Traded
(in Millions)
| | Dividend
Declared
| | Price Range
| | Volume of
Shares Traded
(in Millions)
| | Dividend
Declared
| | | | High
| | Low
| | | High
| | Low
| | 2007 | | | | | | | | | | 2008 | | | | | | | | | | First Quarter | | | $ | 19.48 | | $ | 14.59 | | 142.4 | | $ | .25 | Second Quarter | | | | 19.56 | | | 14.12 | | 146.0 | | | .25 | Third Quarter | | | | 24.60 | | | 14.22 | | 224.4 | | | .25 | Fourth Quarter | | $ | 20.89 | | $ | 17.14 | | 116.3 | | $ | .25 | | | 22.95 | | | 12.03 | | 182.9 | | | .25 | Third Quarter | | | 22.78 | | | 18.75 | | 94.9 | | | .18 | | Second Quarter | | | 24.73 | | | 21.40 | | 93.4 | | | .18 | | First Quarter | | | 24.71 | | | 22.12 | | 68.0 | | | .17 | | | | |
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| For the Year | | $ | 24.73 | | $ | 17.14 | | 372.6 | | $ | .78 | | $ | 24.60 | | $ | 12.03 | | 695.7 | | $ | 1.00 | | | |
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| 2006 | | | | | | | | | | 2007 | | | | | | | | | | First Quarter | | | $ | 24.71 | | $ | 22.12 | | 68.0 | | $ | .17 | Second Quarter | | | | 24.73 | | | 21.40 | | 93.4 | | | .18 | Third Quarter | | | | 22.78 | | | 18.75 | | 94.9 | | | .18 | Fourth Quarter | | $ | 25.45 | | $ | 22.43 | | 53.2 | | $ | .17 | | | 20.89 | | | 17.14 | | 116.3 | | | .25 | Third Quarter | | | 25.25 | | | 21.93 | | 47.6 | | | .17 | | Second Quarter | | | 27.04 | | | 23.74 | | 42.0 | | | .17 | | First Quarter | | | 25.14 | | | 23.05 | | 46.1 | | | .16 | | | | |
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| For the Year | | $ | 27.04 | | $ | 21.93 | | 188.9 | | $ | .67 | | $ | 24.73 | | $ | 17.14 | | 372.6 | | $ | .78 | | | |
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Price and volume data reflect composite transactions; price range reflects intra-day prices; data source is Bloomberg. Shareholders and Dividends As of February 15, 2008, the Company estimates it2009, we estimate that we had approximately 37,00031,500 shareholders, which included approximately 12,00011,500 shareholders of record (i.e. stock certificates are issued in the name of the owner) and approximately 25,00020,000 beneficial shareholders (i.e. stock is held for the owner by their stockbroker in the name of the brokerage firm). At year end, institutional investors (e.g. mutual funds, pension funds) as a group held an estimated 75%80% of the Company’s shares;our common stock; the ten largest positions held an estimated 35%37%. As part of our 2007 Strategic Plan, we increased our quarterly dividend to the Company increasedcurrent rate of $.25 per share from the annual dividend payout from 72 cents to $1previous rate of $.18 per share. The Company paid a 25 cent dividend in January 2008 to shareholders of record on December 14, 2007. We are targeting a dividend payout ratio (annual dividends paid divided by net earnings) of 50-60%, though it has been and will likely be higher for the next twofew years. See the discussion of the Company’s targeted dividend payout under “Pay Dividends” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation on page 37.53. PART II Issuer Repurchases of Equity Securities The table below is a listing of our repurchases of the Company’s common stock during the lastfourth quarter of 2007.2008. | | | | | | | | | | Period
| | Total Number of
Shares Purchased
| | Average Price Paid
per Share
| | Total Number of Shares
Purchased as Part of a
Publicly Announced
Plan or Program*
| | Maximum
Number of Shares
that may yet be
purchased under
the Plans or
Programs*
| October 1-31, 2007 | | 285 | | $ | 19.21 | | 285 | | 400,545 | November 1-30, 2007 | | 436,404 | | $ | 20.01 | | 436,404 | | 9,964,141 | December 1-31, 2007 | | 1,059,491 | | $ | 17.98 | | 1,059,491 | | 8,904,650 | | | |
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| | | Total | | 1,496,180 | | $ | 18.57 | | 1,496,180 | | | | | |
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| | | | | | | | | | | Period
| | Total Number of
Shares Purchased
| | Average Price Paid
per Share
| | Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs(1)
| | Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs(1)
| | October 1-31, 2008 | | 816,284 | | $ | 16.15 | | 816,284 | | 14,424,921 | (2) | November 1-30, 2008 | | 588,721 | | $ | 14.88 | | 588,721 | | 13,836,200 | (2) | December 1-31, 2008 | | 100,661 | | $ | 14.31 | | 100,661 | | 10,000,000 | (2) | | | |
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| | | | Total | | 1,505,666 | | $ | 15.53 | | 1,505,666 | | | | | | |
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*(1) | On August 4, 2004, the Board authorized management to repurchase up to 10 million shares each calendar year beginning January 1, 2005. This standing authorization was first reported in the quarterly report on Form 10-Q for the period ended June 30, 2004, filed August 5, 2004, and shallwill remain in force until repealed by the Board of Directors. On November 13, 2007 the Board accelerated the 10 million share standing repurchase authorization for the 2008 calendar year to begin November 15, 2007. The acceleration was first reported in the Company’s press release issued November 13, 2007 and filed on Form 8-K on November 14, 2007. As of December 31, 2007 there were no shares left under the 2007 calendar year standing authorization (which expired January 1, 2008)December 31, 2007) and 8,904,650 shares left under the 2008 calendar year standing authorization. In addition to thisBy the end of July 2008, we had purchased all of the shares under the 2008 standing authorization, onauthorization. |
| (2) | On February 21, 2008, the Board approved the repurchase of an additional 20 million shares during the 2008 calendar year at management’s discretion, limited to the amount of divestiture proceeds. This special authorization was first publicly announced in the Company’s press release dated February 21, 2008. In 2008, we purchased 6,264,461 shares under the special 20 million share authorization. The special 20 million share authorization expired December 31, 2008. As referenced in note (1) above, on January 1, 2009, the Company was authorized to purchase 10 million shares in 2009. |
Sale of Unregistered Shares of Common Stock The Company issued 75,000 shares of common stock at fair market value to David S. Haffner, President and Chief Executive Officer and Jack D. Crusa, Senior Vice President and President of Specialized Products, as set out below. | | | | | | | | | | | | | | Name
| | Date of
Issuance
| | Number of
Shares
| | Price
per Share
| | Administrative
Fee
| | Total
Purchase
Price
| David S. Haffner | | 10/27/08 | | 25,000 | | $ | 14.59 | | $ | 500 | | $ | 365,250 | | | | 11/20/08 | | 5,000 | | $ | 12.24 | | $ | 100 | | $ | 61,300 | | | | 2/09/09 | | 5,000 | | $ | 13.78 | | $ | 100 | | $ | 69,000 | | | | 2/10/09 | | 4,000 | | $ | 12.97 | | $ | 80 | | $ | 51,960 | | | | 2/12/09 | | 6,000 | | $ | 12.81 | | $ | 120 | | $ | 76,980 | | | | 2/17/09 | | 5,000 | | $ | 12.57 | | $ | 100 | | $ | 62,950 | | | | 2/18/09 | | 3,000 | | $ | 12.45 | | $ | 60 | | $ | 37,410 | | | | 2/20/09 | | 8,000 | | $ | 12.26 | | $ | 160 | | $ | 98,240 | | | | 2/23/09 | | 10,000 | | $ | 11.75 | | $ | 200 | | $ | 117,700 | | | | | |
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| Totals | | | | 71,000 | | | | | $ | 1,420 | | $ | 940,790 | | | | | | | Jack D. Crusa | | 2/18/09 | | 4,000
| | $ | 12.45 | | $ | 80 | | $ | 49,880 |
The shares were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, in that the transactions did not involve a public offering. PART II During the second quarter of 2000, the Company’s Canadian subsidiary issued certain exchangeable shares which were convertible, on a one-to-one ratio, into shares of Leggett common stock in connection with the acquisition of Schukra Manufacturing, Inc., a Canadian corporation. On December 16, 2008, as a result of the conversion of some of the exchangeable shares, the Company issued 120,452 shares of its common stock to four of the former Schukra owners (listed below) in a transaction which qualified for exemption from registration under the Securities Act of 1933 by virtue of Section 4(2) of the Securities Act, in that the issuances did not involve a public offering. The closing price of Leggett common stock on the NYSE on December 16, 2008 was $15.52. | | | Name of Shareholder
| | Number of Shares Issued
| Jessica Cosentino | | 35,113 | Ricardo Cosentino | | 35,113 | Victoria Cosentino | | 35,113 | Mafalda Cosentino | | 15,113 | | |
| Totals | | 120,452 |
Item 6.Selected Financial Data.Data. | | (Unaudited) | | 2007**
| | 2006*
| | 2005*
| | 2004*
| | 2003*
| | 20081
| | 20072, 3
| | 20063
| | 20053
| | 20043
| | (Dollar amounts in millions, except per share data) | | | | | | | | | | | | | | | | | | | | | Summary of Operations | | | | | | | | | | | | | | | Net Sales from Continuing Operations | | $ | 4,306 | | | $ | 4,333 | | $ | 4,258 | | $ | 4,122 | | $ | 3,532 | | $ | 4,076 | | | $ | 4,250 | | | $ | 4,267 | | $ | 4,197 | | $ | 4,055 | Net Earnings from Continuing Operations | | | 51 | | | | 236 | | | 218 | | | 243 | | | 178 | | | 123 | | | | 59 | | | | 236 | | | 216 | | | 235 | Net Earnings (Loss) from Discontinued Operations | | | (62 | ) | | | 65 | | | 33 | | | 42 | | | 28 | | Net Earnings (Loss) from Discontinued Operations, net of tax | | | | (19 | ) | | | (70 | ) | | | 64 | | | 35 | | | 50 | Net Earnings (Loss) | | | (11 | ) | | | 300 | | | 251 | | | 285 | | | 206 | | | 104 | | | | (11 | ) | | | 300 | | | 251 | | | 285 | Earnings per share from Continuing Operations | | | | | | | | | | | | | | | Basic | | | .28 | | | | 1.26 | | | 1.13 | | | 1.24 | | | .91 | | | .73 | | | | .33 | | | | 1.26 | | | 1.12 | | | 1.20 | Diluted | | | .28 | | | | 1.26 | | | 1.13 | | | 1.23 | | | .91 | | | .73 | | | | .33 | | | | 1.26 | | | 1.12 | | | 1.20 | Earnings (Loss) per share from Discontinued Operations | | | | | | | | | | | | | | | Basic | | | (.34 | ) | | | .35 | | | .17 | | | .22 | | | .14 | | | (.11 | ) | | | (.39 | ) | | | .35 | | | .18 | | | .26 | Diluted | | | (.34 | ) | | | .35 | | | .17 | | | .22 | | | .14 | | | (.11 | ) | | | (.39 | ) | | | .35 | | | .18 | | | .25 | Net Earnings (Loss) per share | | | | | | | | | | | | | | | Basic | | | (.06 | ) | | | 1.61 | | | 1.30 | | | 1.46 | | | 1.05 | | | .62 | | | | (.06 | ) | | | 1.61 | | | 1.30 | | | 1.46 | Diluted | | | (.06 | ) | | | 1.61 | | | 1.30 | | | 1.45 | | | 1.05 | | | .62 | | | | (.06 | ) | | | 1.61 | | | 1.30 | | | 1.45 | Cash Dividends declared per share | | | .78 | | | | .67 | | | .63 | | | .58 | | | .54 | | | 1.00 | | | | .78 | | | | .67 | | | .63 | | | .58 | | | |
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| Summary of Financial Position | | | | | | | | | | | | | | | Total Assets | | $ | 4,072.5 | | | $ | 4,265.3 | | $ | 4,072.4 | | $ | 4,197.2 | | $ | 3,889.7 | | $ | 3,162 | | | $ | 4,072 | | | $ | 4,265 | | $ | 4,072 | | $ | 4,197 | Long-term Debt | | | 1,000.6 | | | | 1,060.0 | | | 921.6 | | | 779.4 | | | 1,012.2 | | Long-term Debt, including capital leases | | �� | $ | 851 | | | $ | 1,001 | | | $ | 1,060 | | $ | 922 | | $ | 779 | | | |
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*1 | As discussed in Notes C and D beginning on pages 91 and 95 respectively, the Company incurred asset impairment and restructuring-related charges totaling $84 million in 2008. Of these charges, approximately $33 million were associated with continuing operations and $51 million related to discontinued operations. |
2 | As discussed in Notes C and D beginning on pages 91 and 95 respectively, the Company incurred asset impairment and restructuring-related charges totaling $305 million in 2007. Of these charges, approximately $159 million were associated with continuing operations and $146 million related to discontinued operations. |
3 | As discussed in Note BA on page 66 of the Notes to the Consolidated Financial Statements,86, the amounts for 20032004 through 20062007 have been retrospectively adjusted to reflect certain businesses as discontinued operations. |
** | As discussed in Notes C and D beginning on page 68, the Company incurred asset impairment and restructuring charges totaling $305 million in 2007. Of these charges, approximately $138 million were associated with discontinued operations and $167 million related to continuing operations. |
PART II Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operation. 20072008 HIGHLIGHTS
In 2008, there were two significant and opposing forces in play. On the positive side, we successfully implemented Leggett’s most significant strategic changes in quite some time. On the negative side, the U.S. economy and stock market suffered from their worst performance in decades. In late 2007 we unveiled plans to significantly change the company’s strategic course. We changedhave not yet reached our long-term performance targets (for margins and returns) but we made substantial strategic coursestrides in 2007. 2008. We adopted TSR as our primary strategic objective and introduced TSR-based incentives for senior executives. We set a goal to consistently achieve TSR within the top 1/3 of the S&P 500, which we believe will require average annual TSR of 12-15%. We also adopted role-based portfolio management and implemented a formal, rigorous strategic planning process to continually assess each business unit’s role in the portfolio. During the year, we completed an extensive strategic reviewdivested five businesses (including the Aluminum Products segment) for total after-tax proceeds in excess of $400 million, and contracted our Store Fixtures business unit to a smaller, metal-focused operation that should generate higher profit. We also increased our quarterly dividend by 39% and repurchased 16 million shares of our business portfolio. We realignedstock. Late in the third quarter of 2008, our goals to focus on improving total shareholder return. We adopted role-based portfolio management (with different roles for each business unit based upon competitive advantages, strategic position, and financial health) and implemented a much more rigorous strategic planning process. We also began eliminating or rapidly improving the parts of our business that have been weighing us down. Manymarkets weakened appreciably as consumers reined in their spending in light of the planned divestituresfinancial market distress and necessary operating improvements should occur duringgeneral U.S. and global economic conditions. Weak market demand, partially offset by market share gains in certain businesses, led to lower sales and earnings in 2008. AsWe met our goal to achieve TSR within the top 1/3 of the S&P 500; in fact, our 2008 TSR ranked within the top 10%. However, TSRs in general (for all companies) were significantly depressed, and only 5% of the S&P 500 posted a resultpositive TSR in 2008. Our TSR of these changes,negative 7% was well below the 12-15% we expect to generate significant amounts ofanticipate over the long-term.
Though strong in 2008, cash spend less cashfrom operations was lower than the record set in recent years, and return more cash to shareholders through dividends and share repurchases. In support of this objective, the Board of Directors authorized a 39% increase to the annual dividend, beginning in January 2008. The Board also approved, in February 2008, the repurchase of up to 20 million shares during 2008 at management’s discretion, limited to the amount of divestiture proceeds. This authorization is in addition2007 primarily due to a standing approval to repurchase 10 million shares each year. Sales and earnings of our ongoing businesses declinedsmaller year-over-year decrease in 2007 as demand in many U.S. markets softened. International markets were generally stronger, and growth in our international businesses offset some of the domestic weakness. In addition, we recognized significant, non-cash goodwill and asset impairment charges in late 2007 following the implementation of the strategic plan. These charges represent virtually all of the costs we anticipate for the strategic plan.
working capital. Cash from operations increased significantly in 2007 despite generally weak market conditions. This strong cash from operations coupled with the proceeds from the divestiture of our prime foam business (early in the year) resulted in significant available funds. A portion of these funds was used forhas been and is expected to continue to be sufficient to fund both capital expenditures and acquisitions, and much of the remainder was returneddividends. We are well situated to shareholders through dividends and share repurchases. The balance sheet remains very strong; weweather this challenging economic environment. We ended the year with net debt (as a percentage of net capital) slightly below our long-term, targeted range.range; no significant long-term debt matures until 2012; and we have more than $500 million available under our existing commercial paper program and revolver facility. These topics are discussed in more detail in the sections that follow. PART II INTRODUCTION What We Do Leggett & Platt is a FORTUNE 500 diversified manufacturer that conceives, designs, and produces a wide range of engineered components and products found in manymost homes, retail stores, offices, and automobiles.automobiles, and many retail stores. We make components that are often hidden within, but integral to, our customers’ products. We are North America’s leading independent manufacturer ofof: components for residential furniture and bedding, adjustable beds, carpet underlay, retail store fixtures and point-of-purchase displays, components for office furniture, drawn steel wire, automotive seat support and lumbar systems, and machinery used by the bedding industry for wire forming, sewing, and quilting.machinery. Our Segments Our continuing operations are composed of 2220 business units in four segments, with approximately 24,00020,000 employee-partners, and more than 250160 production facilities located in 2018 countries around the world. Our segments are Residential Furnishings, Commercial Fixturing & Components, Industrial Materials, and Specialized Products. described below. 
Residential Furnishings This segment supplies a variety of components mainly used by bedding and upholstered furniture manufacturers in the assembly of their finished products. We also sell carpet cushion, adjustable beds, bed frames, ornamental beds, carpet cushion,and geo components, and other finished products.components. Commercial Fixturing & Components Operations in this segment manufacture and sell store fixtures and point-of-purchase displays used by retailers.in retail stores. We also produce chair controls, bases, and other components for office furniture manufacturers. PART II Industrial Materials These operations primarily supply steel rod, drawn steel wire, steel billets, and welded steel tubing to other Leggett operations and to external customers. Our wire and tubing is used to make bedding, furniture, automotive seats, wire retail store fixtures, and displays, mechanical springs, and many other end products. Specialized Products From this segment we supply lumbar systems and wire components used by automotive seating manufacturers. We manufacture and install the racks, shelving and cabinets used to outfit fleets of service vans. We also produce machinery, both for ourselves and for others, including bedding manufacturers. Discontinued Operations and Other Divestitures During the past two years, we have divested six businesses. In 2008, we sold our Aluminum Products segment and four smaller business units (Wood Products, Fibers, Plastics, and the dealer portion of Commercial Vehicle Products). We divestedreceived after-tax cash proceeds of $408 million for these five businesses; we also received subordinated notes and preferred stock. In early 2007, we sold our Prime Foam operations in early 2007operations. Two additional business units (Coated Fabrics and expect to divest seven additional businesses during 2008. As a resultStorage Products) are also targeted for divestiture. All of these activities, several businesses, including the two that remain, are disclosed in our year-end financial statements as discontinued operations. Those businesses, listed according to the segment in which they previously resided, include: Aluminum Products: entire segment
Residential Furnishings: Prime Foam (sold in March 2007), Fibers, and Wood Products
Commercial Fixturing & Components: Storage Products and Plastics
Specialized Products: Commercial Vehicle Products—Dealer Unit
We also plan to divest our Coated Fabrics business (which is a part of Residential Furnishings) in 2008, but that divestiture is in an early stage and does not yet qualify the business as a discontinued operation.
Customers
We serveFor the remaining divestitures, we expect to recover the carrying value of the net assets held for sale. Net assets classified as held for sale totaled $54 million at December 31, 2008 (this includes $22 million not associated with the remaining divestitures). Recent market conditions have delayed the expected timing of the sale of these remaining businesses; completing these transactions remains a broad suite of customers, with no single one representing even 5% of our sales from continuing operations. Many are companies whose names are widely recognized; they include most manufacturers of furniture and bedding, a variety of other manufacturers, and many major retailers.
We primarily sell our products through our own sales employees, although we also use independent sales representatives and distributors in some of our businesses.high priority for 2009.
Strategic ChangesDirection During 2007, we completed an extensive review of our business portfolio triggered in part by our underperformance versus stated growth and operating targets.an effort to enhance shareholder return. For each business unit, we considered factors such as competitive advantages, market position, financial performance, and potential growth opportunities. We are makinghave made significant changes to our financial targets, portfolio mix, and planning processes as a result of the review. Total Shareholder Return (TSR) is now the key success measure that we will monitor.use to monitor performance. TSR is driven by the change in our share price and the dividends we pay [TSR = (Change in Stock Price + Dividends Received) /BeginningDividends) / Beginning Stock Price]. There are four key sources of TSR: revenue growth, margin expansion, dividends, and share repurchases. Historically, our primary objective was profitable growth. Going forward, we intend to generate higher TSR through a greater emphasis on improving returns and maximizing cash flow, with growth representing just onebalanced approach that employs all four sources of several means to achieve that result.TSR. We are modifyinghave modified our incentive plans to emphasize the importance of, and reward, TSR. Beginning in 2008, we introduced TSR-based incentives for senior executives and modified business unit bonuses to include a linkgive more importance to returnachieving higher returns on assets.the assets under their direct control. PART II We are adoptinghave adopted role-based portfolio management and plan to tilt ourwill concentrate future investments towardin businesses with strong competitive advantages and financial health. Certain of our businesses (growth businesses)(categorized as Grow) are positioned to generate value through further growth, while others (core businesses)(categorized as Core) are positioned to drive value by improving returnsEBITDA (earnings before interest, taxes, depreciation and maximizingamortization) and optimizing operating cash flow. Both are critical driversflow while employing minimal amounts of TSR.capital. We will allocate capital to each business unit (BU) based upon its role in the portfolio. We plan to invest aggressively in growthGrow businesses that hold strong competitive positions and consistently achieve compelling returns on those investments. We plan to maintain or improve our competitive position in coreCore businesses (thatthat typically hold stable positions in solid markets, where returns are somewhat lower) and focus on improving returns but limit further investment in these operations. In total, we anticipate lower capital expenditures and fewer acquisitions in the near term. In addition, we are implementing We have implemented a more rigorous strategic planning process to continually assess our business units and help guide future decisions regarding the role of each BU,business unit, capital allocation priorities, and new areas in which to grow. We review the portfolio classification of each unit at least on an annual basis to determine its appropriate role. This review includes several different criteria such as competitive position, market conditions, business unit size, and fit within our overall objectives, as well as financial indicators such as EBITDA and operating cash flows relative to the amount of capital employed. To remain in the portfolio, business units are expected to consistently generate after-tax returns in excess of our cost of capital. Business units may employ a variety of means to achieve higher returns, including trimming expenses, introducing new products, improving productivity, adopting more disciplined pricing, reducing working capital, and consolidating assets. Business units that fail to attain minimum return goals will be moved to the Fix or Divest categories. After significant study,As a result of the 2007 strategic review, we are narrowingnarrowed our focus and eliminating over 20%eliminated approximately 15% of theour portfolio based upon each BU’s strategic value and financial returns. Most of this activity is expected to occur in 2008. The largest portion of the revenue reduction, approximately $900 million, will come fromthrough the divestiture of the Aluminum Products segment and sixfour additional business units. Additionally,units (two other divestitures remain). We also placed our Store Fixtures business unit into the Fix category and gave it a one-year period in which to improve returns to at least cost of capital levels.
In the third quarter of 2008, we concluded that the Store Fixtures unit, in its previous form, was not capable of meeting our return requirements. As a result, we narrowed the unit’s scope to focus primarily on the metals part of the fixtures industry, in alignment with Leggett’s core competency of producing steel and steel-related products. We consolidated four wood store fixtures operations into two facilities and will continue to produce a reduced amount of wood fixtures in order to meet the blended requirements (i.e. metal and wood) of certain of our customers. We also effected changes to senior management, further reduced the unit’s overhead, and purged additional customer accounts with unacceptable margins. These changes are expected to trim annual trade sales for the Store Fixtures business unit was givenfrom a 12-month deadline by whichrun-rate in late 2008 of approximately $325 million to significantly improve performance;approximately $250-$275 million in 2009, and we expect annual returns to prune about $100 millionat least match our cost of the unit’s least profitable revenue. Finally, severalcapital. The unit is now considered a Core business units, though otherwise healthy, contain individual plants that arewithin our portfolio; as such, its primary focus is to optimize operating at unacceptablecash flow and improve profit levels. We expect to close or divest a numberwhile minimizing its use of these unprofitable facilities, resulting in a revenue reduction of approximately $200 million.capital. PART II We believe theseActivities related to the Fix and Divest businesses resulted in charges that impacted our operating results in 2007 and 2008. Those charges are discussed on page 40 under the section titled “Asset Impairments and Restructuring-related Charges.”
The strategic changes will increasehave increased available cash, and we intend to return moreare returning much of this cash to shareholders. In support of this objective,November 2007, the Board of Directors authorized a 39% dividend increase, moving the annualquarterly rate to $1.00$.25 per share (from the previous $.72)$.18). This increase was effectiveFor the year 2008, we also repurchased nearly 16 million shares of our stock, fully exhausting our annual repurchase authorization (of 10 million shares), and partially utilizing the supplementary authorization to purchase additional shares with proceeds from the quarterly dividend paid in January 2008.divestitures. We also expect to continue repurchasing our shares, but the timing of those repurchases will depend on several factors, including general economic and havemarket conditions, the price of Leggett stock, and our working capital needs. Customers We serve a standing 10 million share annual authorization from the Board. In addition to the standing authorization, the Board has approved the repurchasebroad suite of up to an additional 20 million shares during 2008 at management’s discretion, limited to the amountcustomers, with no single one representing even 5% of divestiture proceeds.our sales. Many are companies whose names are widely recognized; they include most manufacturers of furniture and bedding, a variety of other manufacturers, and many major retailers. Major Factors That Impact Our Business Many factors impact our business, but those that generally have the greatest impact are:are market demand, for our products,recent economic events, raw material cost trends, and competition. Market Demand Market demand (including product mix) is impacted by several economic factors, with consumer confidence being most significant. Other important factors include disposable income levels, employment levels, housing turnover, and interest rates. All these factors influence consumer spending on durable goods, and therefore affect demand for our components and products. Some of these factors also influence business spending on facilities and equipment, which impacts approximately one quarterone-quarter of our sales. Recent Economic Events In light of recent distress in the financial and credit markets (and the related impact on U.S. and global economies) we have been impacted, and may continue to be impacted, in several different areas as discussed below. Lower Market-Wide Demand. Throughout 2007 and 2008, demand weakness in the U.S. home-related, retail, and retailother markets led to lower volumeunit order activity, sales and earnings in certain of our businesses. In contrast, we saw strength in most international markets, including bedding, furniture, and automotive, as well as the non-dealer portion of our domestic Commercial Vehicle Products business. Several factors, including a weak U.S. economy, higher energy costs, have reduced disposable income, leading to more conservative spending by U.S. consumers on major discretionary purchases. In addition, a slump in thedepressed housing market, and increased competitionlow consumer confidence contributed to conservative spending habits by U.S. consumers. Late in the third quarter of 2008, our global markets weakened appreciably as consumers further reined in spending during this period of credit concerns and stock market volatility. Short lead times in most of our markets allow for very limited long-term visibility into demand trends; however, we PART II currently expect market demand to be soft in 2009. Despite the global economic decline, we have gained market share in our U.S. bedding components businesses primarily due to (i) bedding manufacturers shifting innerspring purchases from other typesinternational to domestic sources as a result of consumer goods (such as electronics) have led to lowerantidumping duties imposed on imported innersprings from China, South Africa, and Vietnam; (ii) the deverticalization of a strong regional bedding manufacturer (they now buy from us components they had previously produced for themselves); and (iii) increased demand for innerspring mattresses, rather than premium priced, non-innerspring products. These market share gains offset some of the demand weakness. Customers and Suppliers. Due to the recent tightening of credit markets and concerns regarding the availability of credit, our products.customers may be delayed in obtaining, or may not be able to obtain, necessary cash for their purchases. Additionally, our suppliers could be negatively impacted by the current credit and financial market conditions causing delays in product deliveries to us. These delays could negatively impact our customers’ and suppliers’ ability to conduct business and could adversely affect our unit order activity and sales, and therefore negatively impact our cash flows and liquidity. Management’s Response to Recent Economic Events. Activities completed over the past few years (including the divestiture of businesses under our strategic plan, closure of underperforming and underutilized facilities, elimination of sales with unacceptable margins, and other cost reduction initiatives) improved our cost position in advance of the late 2008 economic contraction. In response to the recent economic events, we reduced production and were running well below our normal utilization levels during the fourth quarter 2008 in an effort to bring inventories in line with current demand. We have further reduced headcount, overhead costs, and capital spending, and are completing the closure of certain facilities. Given our balance sheet, operating cash flow and access to credit, we expect to be able to endure an extended downturn in market demand with no material impact to our financial position or liquidity. Raw Material Costs In many of our businesses, we enjoy a cost advantage from buying large quantities of raw materials. This purchasing leverage is a benefit that many of our competitors generally do not have. Still, our costs can changevary significantly as market prices for raw materials (many of which are commodities) fluctuate. Purchasing arrangements vary across the company.Company. We typically have short-term commitments from our suppliers; accordingly our raw material costs generally move with the market. In certain of our businesses, we have longer-term purchase contracts with pricing terms that provide stability under reasonable market conditions. However, when commodities experience extreme inflation, vendors do not always honor those contracts. Our ability to recover higher costs (through selling price increases) is crucial. We have few long-term, fixed-pricing contracts with customers. When we experience significant increases in raw material costs, we typically implement price increases to recover the higher costs. AlthoughConversely, when costs decrease significantly, we are generally ablepass a portion of those lower costs through to pass through most costour customers. The timing of our price increases or decreases is a critical factor; we encounter greater difficulty (i)typically experience a lag in businesses whererecovering higher costs, so we havealso expect to realize a smaller market share, and (ii) in products that are of a commodity nature. Inability to recover cost increases (or a delay in the recovery time) negatively impacts our earnings.lag as costs decline. PART II Steel is our principal raw material and at various times during thein past three years we have experienced extreme cost fluctuations in this commodity. In most cases, the major changes (both increases and decreases) were passed through to customers via selling price adjustments. In late 2007 once again we began seeing higher steel costs, which are continuing into earlyand significant increases occurred in 2008. Since early December, market prices have increased from 15% to 30%, depending on the type of steel. We have announcedimplemented price increases to recover some of these higher costs. Market prices began to abate late in the year, but for certain types of steel, continued to be well above prior year levels. With the precipitous drop in market demand beginning late in the third quarter, and the need to reduce inventories (that were purchased before steel costs declined), at year-end we had not yet made substantial purchases of the lower cost steel. We also experienced significant inflation inOur other raw materials include woven and non-woven fabrics, foam scrap, chemicals, fibers, and resins during the past three years, but recovered most of the higher costs through selling price increases. During 2007chemicals. We have experienced changes in the cost of foam scrap declined from peak levels, resultingthese materials in lower selling prices inrecent years, and typically pass them through to our carpet underlay business.customers.
When we raise our prices to recover higher raw material costs, this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components. We experienced this de-contenting effect in our Residential Furnishings and Industrial Materials segments in recent years, as our customers changed the quantity and mix of components in their finished goods to address steel and chemical inflation. Our profit margins were negatively impacted as a result ofby this de-contenting. We are responding by developing new products (including new types of innersprings)innersprings and boxsprings) that enable our customers to reduce their total costs, and in certain instances, provide higher margin and profit contribution for our operations. Some of these new products were introduced during 2007. 2007, with production of those products ramping up in 2008.Competition Many of our markets are highly competitive with the number of competitors varying by product line. In general, our competitors tend to be smaller, private companies. We believe we gain competitive advantage in our global markets through low cost operations, significant internal production of key raw materials, superior manufacturing expertise and product innovation, higher quality products, extensive customer service capabilities, and greater financial strength. Many of our competitors, both domestic and foreign, compete primarily on the basis of price. Our success has stemmed from the ability to remain price competitive, while delivering product quality, innovation, and customer service. We continue to face pressure from foreign competitors as some of our customers source a portion of their components and finished products from Asia. In instances where our customers move production of their finished products overseas, our operations must be located nearby to supply them efficiently. At the end of 2007, Leggett operated 12We currently operate 11 facilities in China. In recent years we experienced increased price competition in the U.S. from foreign bedding component manufacturers. We reacted to this competition by selectively adjusting prices, and by developing new proprietary products that help our customers reduce total costs. The increased price competition for bedding components iswas partially due to lower wire costs in China. Asian manufacturers currently benefit from cost advantages for commodities such as PART II steel and chemicals. Foreign manufacturers also benefit from lenient regulatory climates related to safety and environmental matters. We believe innersprings are being imported into the U.S. at low prices that violate our trade laws, and also are frequently imported under improper tariff classifications, thus avoiding duties. In late 2007, we filed an anti-dumping petition withantidumping suit related to innerspring imports from China, South Africa and Vietnam. We saw a distinct decline in unfair imports during 2008 after the U.S. governmentantidumping investigations began, and as a result, we regained market share. The investigations were brought to a favorable conclusion in early 2009. We should see improved performance in our Bedding group as imported innersprings from these countries will now have to be sold at fair prices. The current antidumping duty rates on behalf of the innerspring industryinnersprings from these countries are significant, ranging from 116% to attempt to remedy this situation.
Divestiture
In March 2007, we completed the divestiture of our Prime Foam operations, which primarily produced commodity foam used234%, and will remain in effect for cushioning by upholstered furniture and bedding manufacturers. We retained our foam operations that produce carpet underlay. With 2006 revenue of approximately $200 million, this divestiture is the largest in Leggett’s history.at least 5 years.
Asset Impairments and RestructuringRestructuring-related Charges Net impairment and restructuring-related charges (for both continuing and discontinued operations) totaled $84 million in 2008 and $305 million in 2007. The majority of these charges occurred as a result of the strategic changes announced in late 2007. Those details are discussed in the paragraphs below. Net impairment and restructuring-related charges not associated with the 2007 Strategic Plan totaled $31 million in 2008 and $17 million in 2007. In the fourth quarter 2007, we recognized $287 million (primarily non-cash) of impairment and restructuring-related charges associated with the 2007 Strategic Plan. These charges (which included both continuing and discontinued operations) include goodwill impairments for the Fixture & Display reporting unit of $143 million and the Aluminum reporting unit of $83 million. Goodwill and asset impairment charges related to other held-for-sale businesses totaled $51 million. Restructuring-related charges totaled $10 million. In 2008, we incurred additional costs totaling $53 million related to the 2007 Strategic Plan. This total includes $6 million of restructuring-related costs, $26 million of goodwill impairment charges, $7 million of asset impairment charges, and $14 million of losses from sale of assets. To date, we have incurred total costs associated with the 2007 Strategic Plan of $340 million ($153 million in continuing operations and $187 million in discontinued operations) and believe the activity to be substantially complete. For further information about asset impairments and restructuring, see Notes C and D to the Consolidated Financial Statements on pages 91 and 95. As discussed on pages 4 and 36, in late 2007 the Store Fixtures business unit was placed in the Fix category and given a one-year period in which to improve returns to at least cost of capital levels. In the fall of 2008, we concluded that the business unit should be contracted to a smaller, metal-focused business. This strategy change did not result in any goodwill impairment charges. The Store Fixtures business unit is included in our Fixture & Display reporting unit for goodwill impairment testing purposes. We conduct an annual review for potential goodwill impairment (in June) and long-lived asset impairment (at year-end) for all of our reporting units. We also review for potential impairment if an event or change in circumstance occurs that would more likely than not reduce the fair value of the reporting unit below its PART II carrying amount or impact the recoverability of the assets. At December 31, 2008, the Fixture & Display reporting unit had $106 million of goodwill and $64 million of other long-lived assets ($62 million of the long-lived assets were associated with the Store Fixtures business unit). For further information regarding the methodology we use for impairment testing, the assumptions we use for this testing and the potential for future impairment, refer to Critical Accounting Policies on page 60, and also Note C to the Consolidated Financial Statements on page 91. PART II RESULTS OF OPERATIONS—2008 vs. 2007 During 2007, we recognized $3052008, sales from continuing operations decreased 4%. We reported full-year net earnings from continuing operations of $123 million, which included $21 million of net impairment and restructuring-related charges, impairments, and other items. Our 2008 earnings reflected extremely soft market demand which led to lower unit volume in many of our businesses. In the vast majority of which were non-cash items incurred followingour markets, demand was soft throughout the implementationyear, but weakened appreciably late in the third quarter as consumers further reduced their spending in response to the financial market distress and general U.S. and global economic conditions. Market share gains in certain businesses offset some of the strategic plan announcedimpact from weak demand. During the year, we also experienced significant inflation in November (andsteel costs, and we successfully implemented price increases to recover the majority of these higher costs. Further details about our consolidated and segment results from continuing operations are discussed earlierbelow. Consolidated Results (continuing operations) The following table shows the changes in this MD&A)sales and earnings from continuing operations during 2008, and identifies the major factors contributing to the changes. Reported amounts for 2007 have been retrospectively adjusted to reflect the reclassification of our Coated Fabrics business unit from continuing to discontinued operations. | | | | | | | | | (Dollar amounts in millions, except per share data) | | Amount
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| | Net sales from continuing operations: | | | | | | | | Year ended December 31, 2007 | | $ | 4,250 | | | | | Acquisition sales growth | | | 35 | | | 0.8 | % | Small divestitures | | | (41 | ) | | (0.9 | )% | Internal sales decline: | | | | | | | | Approximate inflation | | | 285 | | | 6.7 | % | Approximate unit volume decline | | | (453 | ) | | (10.7 | )% | | | |
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| Internal sales decline | | | (168 | ) | | (4.0 | )% | | | |
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| Year ended December 31, 2008 | | $ | 4,076 | | | (4.1 | )% | | | |
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| | | | Earnings from continuing operations: | | | | | | | | | (Dollar amounts, net of tax) | | | | | | | Year ended December 31, 2007 | | $ | 59 | | | | | Goodwill impairment in Fixture & Display | | | 120 | | | | | Restructuring-related charges | | | (4 | ) | | | | Asset impairment | | | (4 | ) | | | | Interest expense (net) | | | 6 | | | | | Tax items | | | 12 | | | | | Other factors including lower unit volume and production | | | (66 | ) | | | | | | |
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| | | | Year ended December 31, 2008 | | $ | 123 | | | | | | | |
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| | | | Earnings Per Share (continuing operations)—2007 | | $ | 0.33 | | | | | | | |
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| | | | Earnings Per Share (continuing operations)—2008 | | $ | 0.73 | | | | | | | |
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PART II Sales from continuing operations decreased 4% versus 2007, primarily reflecting extremely weak market demand and our decision to exit specific sales volume with unacceptable profit margins (primarily in our Store Fixtures business). OfThese declines were partially offset by inflation-related price increases and market share gains. Our U.S. bedding components business gained market share in 2008 as a result of: i) bedding manufacturers shifting innerspring purchases from international to domestic sources; ii) the deverticalization of a strong regional bedding manufacturer; and, iii) increased demand for innerspring mattresses, rather than premium-priced, non-innerspring products. We experienced significant inflation in steel costs during 2008, and in response, we implemented price increases to recover the higher costs. The magnitude of our selling price increases varied by product line depending on steel content, but in our major Residential and Industrial businesses, prices increased substantially. In recent months, steel costs have abated. As costs were increasing, we experienced a lag in recovering them; likewise, as costs decline we also expect to realize a lag in any price reductions we give back to our customers. Full-year earnings from continuing operations were higher than in 2007, primarily due to: Non-recurrence of 2007 goodwill impairment charges related to our Fixture & Display group ($120 million) Non-recurrence of 2007 tax items ($12 million)—adjustments to valuation allowances related to potential foreign tax benefits Several factors negatively impacted earnings. The most significant were: Unit volume declines (down roughly 10% for the year) Higher restructuring-related charges and asset impairments ($19 million) Reduced production levels—with the significant pull-back in demand late in the year, we cut production (even below depressed demand levels) and reduced inventories LIFO Impact All of our segments use the first-in, first-out (FIFO) method for valuing inventory. In our consolidated financials, an adjustment is made at the corporate level (i.e. outside the segments) to convert about 60% of our inventories to the last-in, first-out (LIFO) method. These are primarily our domestic, steel-related inventories. Significant steel cost increases during the year, along with moderately higher levels of these steel-related inventories, resulted in LIFO expense from continuing operations of $62 million in 2008 (versus a $1 million benefit in 2007). Segment-level earnings in 2008 generally benefited under the FIFO method from the effect of rising commodity costs. For further discussion of inventories, see Note A to the Consolidated Financial Statements on page 82. Interest and Income Taxes Net interest expense decreased $9 million versus 2007, primarily the result of debt maturities paid in 2007 and 2008, as well as lower commercial paper borrowings. PART II The consolidated worldwide effective income tax rate for 2008 was also lower, at 34.6% versus 58.1% in 2007. The 2007 rate was negatively impacted by goodwill impairment charges approximately $138totaling $143 million, of which $95 million were non-deductible. This caused the 2007 rate as a percent of pre-tax income to be much higher than normal. In 2008, a tax benefit associated with the planned divestitures included in discontinued operations. The remaining $167 million relates to continuing operationswrite-off of an acquired company’s stock was offset by increased reserves for uncertain tax positions and includes $143 million of goodwill impairment in the Fixture & Display business. The table below provides more detail regarding the 2007 net charges. In 2008, we expect an additional $15 to $25 million of costs associated with the strategic plan.valuation allowances against deferred tax assets for certain foreign entities. | | | | | | | | | | | | Millions of dollars
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| Restructuring charges | | $ | 3 | | | | | | | | | Goodwill impairment charges | | | 243 | | | | | | | | | Other asset impairment charges | | | 34 | | | | | | | | | Inventory obsolescence and other costs | | | 7 | | | | | | | | | | | |
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| | | | | | | | 2007 costs related to the Strategic Plan | | $ | 287 | | | $ | 3 | | | $ | 284 | Other restructuring-related costs in 2007 | | | 27 | | | | 12 | | | | 15 | Gains from sales of assets in 2007 | | | (9 | ) | | | (9 | ) | | | — | | | |
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| 2007 net costs | | $ | 305 | | | $ | 6 | | | $ | 299 | | | |
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In the third quarter of 2005,2008, we launchedrecorded a significant broad-based restructuring project$4 million valuation allowance against certain foreign tax assets. The valuation allowance related to reduce excess capacity and improve performanceour Canadian automotive operations that produce lumbar supports. The automotive industry is currently in a numberdramatic state of decline, which has reduced the demand for our businesses. That restructuring was essentially completedcomponents. In addition to demand factors, these operations have also been negatively impacted by the strength in 2006.recent years of the Canadian dollar versus the U.S. dollar (our Canadian automotive operations sell in U.S. dollars while incurring labor and overhead costs in Canadian dollars, thereby reducing margins). As a result, we believe it is more likely than not we won’t realize the benefit of deferred tax assets associated with these operations. As a result of recording this tax valuation allowance, we specifically reviewed expected future cash flows for this component of the Automotive Reporting Unit as part of the restructuring plan,annual long-lived asset impairment review. Based upon current facts and circumstances, we identified 36 underutilized or underperforming facilitiesbelieve that the carrying value of these operations is recoverable through future operating cash flows. Performance in 2007 and the first half of 2008 was negatively impacted by the strength of the Canadian versus the U.S. Dollar. While it is difficult to predict the future movement in exchange rates, the Canadian dollar has recently weakened versus the U.S. Dollar. If that trend were subsequently closed,to continue, this would contribute to the improvement of margins going forward. The carrying value of these operations was $51 million at December 31, 2008, and we expect the future cash flows to recover those assets. Currently, the operations generate positive cash flows that we expect to improve in 2009 through the combination of overhead reductions and reduced material costs caused by expected lower steel prices. We continue to be awarded new product placements so we believe market share loss is not a factor impacting recent performance. Segment Results (continuing operations) In the following section we discuss 2008 sales and earnings before interest and taxes (EBIT) from continuing operations for each of our segments. The Residential Furnishings reported amounts for 2007 have been retrospectively adjusted to reflect the reclassification of our Coated Fabrics business unit from continuing to discontinued operations. We provide additional detail about segment results and a reconciliation of segment EBIT to consolidated or sold. WeEBIT in Note O to the Consolidated Financial Statements on page 117. PART II Residential Furnishings | | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
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Margins
| | Year ended December 31, 2008 | | $ | 2,120 | | | $ | 151 | | | 7.1 | % | Year ended December 31, 2007 | | | 2,254 | | | | 174 | | | 7.7 | % | | | |
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| | | | % decrease | | | (6 | )% | | | (13 | )% | | | | Internal sales decrease | | | (5 | )% | | | | | | | | Small divestitures | | | (1 | )% | | | | | | | |
Residential Furnishings sales decreased in 2008, reflecting weak market demand. This decrease was partially offset by inflation-related price increases and market share gains in our U.S. bedding business (discussed under Consolidated Results above). Demand in our U.S. residential markets was weak throughout 2008, but softened further in late September reflecting reduced spending by consumers on large ticket items that contain our products. International markets, which were relatively stronger earlier in the year, also took a more critical look at other underperforming operations;experienced much softer demand in the latter part of the year as a result we modified or accelerated restructuring activities that were previously underway, and identified other operations with impaired assets. Net costs recognized in 2005 and 2006 for all restructuring-related activities were $55 million and $12 million, respectively.of deteriorating global economic conditions. We provide additional details aboutEBIT and EBIT margins decreased versus 2007 due to lower sales and higher asset impairments and restructuring-related costs (of $14 million), partially offset by a gain from the sale of a business (of $8 million) and operating improvements in certain locations.
Commercial Fixturing & Components | | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
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Margins
| | Year ended December 31, 2008 | | $ | 711 | | | $ | 14 | | | 2.0 | % | Year ended December 31, 2007 | | | 837 | | | | (104 | ) | | (12.4 | )% | | | |
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| | | | (Decrease) increase | | $ | (126 | ) | | $ | 118 | | | | | | | |
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| | | | % (decrease) increase | | | (15 | )% | | | 113 | % | | | | Internal sales decrease | | | (15 | )% | | | | | | | | Acquisitions (net of small divestitures) | | | 0 | % | | | | | | | |
Sales decreased in 2008 due to several factors, including our decision in the Store Fixtures business to exit specific sales volume with unacceptable margins, reduced capital spending by retailers, and lower demand for office furniture components. EBIT and EBIT margins increased versus the prior year, primarily due to the non-recurrence of last year’s goodwill impairment charge (of $143 million), partially offset by lower sales. PART II Industrial Materials | | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
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Margins
| | Year ended December 31, 2008 | | $ | 966 | | | $ | 96 | | | 9.9 | % | Year ended December 31, 2007 | | | 776 | | | | 55 | | | 7.1 | % | | | |
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| | | | Increase | | $ | 190 | | | $ | 41 | | | | | | | |
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| | | | % increase | | | 24 | % | | | 75 | % | | | | Internal sales increase | | | 24 | % | | | | | | | | Acquisitions (net of small divestitures) | | | 0 | % | | | | | | | |
2008 sales increased significantly, primarily from the pass through of higher steel costs and restructuringincreased sales of steel billets. Ongoing weak demand in Notes Cmany of our markets (including bedding, furniture, and D on pages 68 and 69, respectively,automotive) offset a portion of the Notessales gain. EBIT and EBIT margins also increased versus 2007, primarily due to Consolidated Financial Statements.higher sales and operating improvements in certain locations. Specialized Products | | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
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Margins
| | Year ended December 31, 2008 | | $ | 682 | | | $ | 41 | | | 6.0 | % | Year ended December 31, 2007 | | | 715 | | | | 65 | | | 9.1 | % | | | |
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| | | | % decrease | | | (5 | )% | | | (37 | )% | | | | Internal sales decrease | | | (5 | )% | | | | | | | | Acquisitions (net of small divestitures) | | | 0 | % | | | | | | | |
Sales decreased in 2008, primarily reflecting weak demand that continued throughout the year in our North American automotive business and the fleet portion of Commercial Vehicle Products. Our machinery and European and Asian automotive businesses posted full-year sales growth despite demand softening late in the year. EBIT and EBIT margins decreased versus the prior year, mainly due to lower sales, higher restructuring-related costs (of $4 million), and higher steel costs with limited recovery. Results from Discontinued Operations Full year earnings from discontinued operations, net of tax, increased $52 million, from a loss of $71 million in 2007 to a loss of $19 million in 2008. This earnings increase was primarily due to lower asset impairments and restructuring-related charges (of $90 million), partially offset by the non-recurrence of a 2007 tax benefit (of $30 million) associated with a difference in book and tax basis of an acquired company’s stock as a result of reaching held for sale status. PART II RESULTS OF OPERATIONS—2007 vs. 2006 During 2007, sales from continuing operations decreased slightly. We reported a full year net loss of $.06 per share due to non-cash charges following the implementation of the strategic plan announced in November.November 2007. Operationally, 2007 earnings reflected ongoing soft demand in the U.S. residential markets. Further details about our consolidated and segment results from continuing operations are discussed below. Consolidated Results (continuing operations) The following table shows the changes in sales and earnings from continuing operations during 2007, and identifies the major factors contributing to the changes:changes. Reported amounts for 2007 and 2006 have been retrospectively adjusted to reflect the reclassification of our Coated Fabrics business unit from continuing to discontinued operations. | | | | | | | Amount
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| | | | | Net sales from continuing operations: | | | | | Year ended December 31, 2006 | | $ | 4,333 | | | | $ | 4,267 | | | Acquisition sales growth | | | 119 | | | 2.7 | % | | | 119 | | | 2.8 | % | Small divestitures | | | (27 | ) | | (0.6 | )% | | | (27 | ) | | (0.6 | )% | Internal sales decline | | | (119 | ) | | (2.7 | )% | | | (109 | ) | | (2.6 | )% | | | |
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| Year ended December 31, 2007 | | $ | 4,306 | | | (0.6 | )% | | $ | 4,250 | | | (0.4 | )% | | | |
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| Earnings from continuing operations: | | | | | | (Dollar amounts, net of tax) | | | | | | | Year ended December 31, 2006 | | $ | 236 | | | | $ | 236 | | | Goodwill impairment in Fixture & Display | | | (120 | ) | | | | (120 | ) | | Asset impairment | | | (5 | ) | | | | (3 | ) | | Higher restructuring-related charges | | | (5 | ) | | | | (4 | ) | | Tax items | | | (24 | ) | | | | (24 | ) | | Other factors including lower internal sales and higher legal reserves, partially offset by earnings from recent acquisitions | | | (31 | ) | | | Other factors including lower internal sales, partially offset by earnings from recent acquisitions | | | | (26 | ) | | | | |
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| | Year ended December 31, 2007 | | $ | 51 | | | | $ | 59 | | | | | |
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| | Earnings Per Share (continuing operations)—2006 | | $ | 1.26 | | | | $ | 1.26 | | | | | |
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| | Earnings Per Share (continuing operations)—2007 | | $ | 0.28 | | | | $ | 0.33 | | | | | |
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During 2007, sales from continuing operations decreased slightly, with acquisition growth (net of small divestitures) more than offset by lower internal sales (i.e. excluding acquisitions and divestitures). We experienced soft demand throughout 2007 in the U.S. home-related and retail markets that we serve, but these declines were partially offset by strength in most of our international markets and the non-dealer portion of the domestic Commercial Vehicle Products business. These trends are discussed in the segment results below. Full-year earnings from continuing operations of $.28$.33 per share were significantly lower than the prior year, primarily due to the non-cash charges and tax items, but also from weak demand in many of our domestic markets. The tax items include, PART II Interest and Income Taxes Net interest expense in 2007 adjustmentswas generally comparable to valuation allowances related2006. The consolidated worldwide effective income tax rate in 2007 was 58.1%, versus 29.6% in 2006. The 2006 rate was below historical levels primarily due to potential foreign tax benefits, and in 2006, athe benefit from the write-off of an acquired company’s stock. stock, and a reduction in the valuation allowance for foreign tax credits recorded in 2005 as part of a foreign entity restructuring and cash repatriation transaction. The 2007 rate was negatively impacted by goodwill impairment charges totaling $143 million, of which $95 million were non-deductible. This caused the 2007 rate as a percent of pre-tax income to be much higher than normal.Segment Results (continuing operations) In the following section we discuss 2007 sales and earnings before interest and taxes (EBIT)EBIT from continuing operations for each of our segments. ReportedThe Residential Furnishings reported amounts for 20062007 have been retrospectively adjusted to reflect onlythe reclassification of our Coated Fabrics business unit from continuing operations and also to reflect an organizational change that moved a few small formed wire operations from Commercial Fixturing & Components to Industrial Materials.discontinued operations. We provide additional detail about segment results and a reconciliation of segment EBIT to consolidated EBIT in Note O to the financial statementsConsolidated Financial Statements on page 92.117. Residential Furnishings | | (Dollar amounts in millions) | | Sales
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Margins
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Margins
| | Year ended December 31, 2007 | | $ | 2,310 | | | $ | 161 | | | 7.0 | % | | $ | 2,254 | | | $ | 174 | | | 7.7 | % | Year ended December 31, 2006 | | | 2,425 | | | | 229 | | | 9.4 | % | | | 2,358 | | | | 231 | | | 9.8 | % | | | |
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| | % decrease | | | (5 | )% | | | (30 | )% | | | | (4 | )% | | | (25 | )% | | Internal sales decline | | | (7 | )% | | | | | | | | Internal sales decrease | | | | (6 | )% | | Acquisitions (net of small divestitures) | | | 2 | % | | | | 2 | % | | | | | | |
Residential Furnishings sales decreased in 2007, reflecting lower internal sales. Acquisitions (net of two small divestitures) partially offset the decline. The sales decrease is primarily due to soft demand in the U.S. residential markets during 2007 and very strong sales in our carpet underlay business during 2006. International demand for both bedding and upholstered furniture components was considerably stronger, and partially offset the domestic sales declines. EBIT and EBIT margins decreased versus 2006 primarily due to several factors: Increased legal reserves ($4 million)
Higher decline. Lower asset impairment and restructuring-related charges ($179 million in 2007 vs. $14$12 million in 2006)
These factors were partially offset by and earnings from recent acquisitions.acquisitions partially offset the EBIT impact from reduced sales.
PART II Commercial Fixturing & Components | | (Dollar amounts in millions) | | Sales
| | EBIT
| | EBIT
Margins
| | | Sales
| | EBIT
| | EBIT
Margins
| | Year ended December 31, 2007 | | $ | 837 | | | $ | (104 | ) | | (12.4 | )% | | $ | 837 | | | $ | (104 | ) | | (12.4 | )% | Year ended December 31, 2006 | | | 861 | | | | 60 | | | 7.0 | % | | | 861 | | | | 60 | | | 7.0 | % | | | |
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| | Decrease | | $ | (24 | ) | | $ | (164 | ) | | | $ | (24 | ) | | $ | (164 | ) | | | | |
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| | % decrease | | | (3 | )% | | | (273 | )% | | | | (3 | )% | | | (273 | )% | | Internal sales decline | | | (3 | )% | | | | | | | | Internal sales decrease | | | | (3 | )% | | Acquisitions (net of small divestitures) | | | 0 | % | | | | 0 | % | | | | | | |
Sales decreased in 2007, primarily due to lower Store Fixtures volume and our decision to walk away from sales with unacceptable margins, but also from slightly lower demand for office furniture components. EBIT and EBIT margins were significantly lower than 2006, primarily due to a large, non-cash goodwill impairment charge. The major factors impacting EBIT were: Goodwill impairment ($143 million) Higher asset impairment and restructuring-related charges ($14 million in 2007 vs. $3 million in 2006) These items were partially offset by gains from the sales of assets ($8 million). Industrial Materials | | (Dollar amounts in millions) | | Sales
| | EBIT
| | EBIT
Margins
| | | Sales
| | EBIT
| | EBIT
Margins
| | Year ended December 31, 2007 | | $ | 776 | | | $ | 55 | | | 7.1 | % | | $ | 776 | | | $ | 55 | | | 7.1 | % | Year ended December 31, 2006 | | | 784 | | | | 55 | | | 7.0 | % | | | 784 | | | | 55 | | | 7.0 | % | | | |
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| | Increase (decrease) | | $ | (8 | ) | | $ | — | | | | Decrease | | | $ | (8 | ) | | $ | — | | | | | |
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| | % increase (decrease) | | | (1 | )% | | | 0 | % | | | Internal sales decline | | | (3 | )% | | | | | | | | % decrease | | | | (1 | )% | | | 0 | % | | Internal sales decrease | | | | (3 | )% | | Acquisitions (net of small divestitures) | | | 2 | % | | | | 2 | % | | | | | | |
Internal sales declined during the year, but this decrease was mostly offset by acquisitions (net of small divestitures). Continued softness in the U.S. residential markets led to lower unit volume in our wire operations, but this decline was partially offset by inflation-related sales growth (from price increases we implemented to recover higher raw material costs). EBIT and EBIT margins were flat with the prior year, as the impact of lower sales was offset by earnings from an acquired business. PART II Specialized Products | | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
| | | EBIT
| | | EBIT
Margins
| | Year ended December 31, 2007 | | $ | 715 | | | $ | 65 | | | 9.1 | % | Year ended December 31, 2006 | | | 621 | | | | 43 | | | 6.9 | % | | | |
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| | | | Increase | | $ | 94 | | | $ | 22 | | | | | | | |
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| | | | % increase | | | 15 | % | | | 51 | % | | | | Internal sales growth | | | 11 | % | | | | | | | | Acquisitions (net of small divestitures) | | | 4 | % | | | | | | | |
Strong sales increases in 2007 reflected world-wide growth in our automotive business, and continued solid performance in the non-dealer portion of Commercial Vehicle Products. Acquisitions (net of a small divestiture) also contributed to higher sales during the year. EBIT and EBIT margins improved significantly, reflecting higher sales in the segment and earnings from a company acquired early in 2007. These gains were partially offset as the strength of the Canadian dollar negatively impacted our Automotiveautomotive business (we incur costs in Canadian dollars and sell in U.S. dollars). Results from Discontinued Operations Full year earnings from discontinued operations, net of tax, declined $127$135 million, from $65$64 million in 2006 to a loss of $62$71 million in 2007. The earnings decline was primarily due to: Higher asset impairments and restructuring-related charges (of $116$121 million) Non-recurrence of the 2006 reimbursement of a duty on Canadian lumber imports (of $10 million) Softer demand, lower capacity utilization, and manufacturing inefficiencies in certain operations These items were partially offset by a tax benefit (of $30 million) associated with a difference in book and tax basis of an acquired company’s stock as a result of reaching held for sale status. RESULTS OF OPERATIONS—2006 vs. 2005PART II
During 2006, sales from continuing operations grew 2%. Earnings also increased due to several factors, including lower restructuring-related expenses and the absence of 2005’s higher workers’ compensation costs. We also realized benefits from the 2005 restructuring initiative, as expected, in the latter part of the year. Further details about these items and our consolidated and segment results from continuing operations are discussed below.
Consolidated Results (continuing operations)
The following table shows the changes in sales and earnings from continuing operations during 2006, and identifies the major factors contributing to the changes:
| | | | | | | | | | | Amount
| | | %
| | | (Dollar amounts in millions, except per share data) | | | | | | | Net sales from continuing operations: | | | | | | | | Year ended December 31, 2005 | | $ | 4,257 | | | | | Acquisition sales growth | | | 197 | | | 4.6 | % | Restructuring-related closures & divestitures | | | (92 | ) | | (2.2 | )% | Internal sales decline | | | (29 | ) | | (0.7 | )% | | | |
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| Year ended December 31, 2006 | | $ | 4,333 | | | 1.7 | % | | | |
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| Earnings from continuing operations: | | | | | | | | | (Dollar amounts, net of tax) | | | | | | | Year ended December 31, 2005 | | $ | 218 | | | | | Lower restructuring-related charges | | | 22 | | | | | Lower workers’ compensation expense | | | 14 | | | | | Other factors including restructuring benefits and income from acquisitions, offset by product mix, price competition, and higher interest expense | | | (18 | ) | | | | | | |
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| | | | Year ended December 31, 2006 | | $ | 236 | | | | | | | |
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| | | | Earnings Per Share (continuing operations)—2005 | | $ | 1.13 | | | | | | | |
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| | | | Earnings Per Share (continuing operations)—2006 | | $ | 1.26 | | | | | | | |
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During 2006, acquisitions contributed all of the full year sales growth, and were partially offset by slightly lower internal sales and declines from restructuring and divestitures. The restructuring-related sales decrease occurred as we chose to walk away from business that was marginally profitable, or in some instances, unprofitable. Internal sales declines reflect lower volume in certain businesses partially offset by inflation-related sales growth (from price increases we implemented to recover higher raw material costs).
In the North American bedding market, volume was weak for most of the year and softened further beginning in September. Automotive demand, and to a lesser extent, custom store fixture demand was also soft for most of the year. In contrast, our residential furniture components, office furniture components, machinery, and carpet underlay businesses performed very well. These trends are discussed in the segment results below.
Net earnings and earnings per share increased versus 2005 primarily due to lower restructuring-related charges and lower workers’ compensation expense. In 2005, we significantly increased our reserves for workers’ compensation to reflect higher costs of medical care and longer durations of claims. Workers’ compensation costs returned to normal levels in 2006. Earnings also benefited in 2006 from restructuring-related operating improvements and acquisitions. A lower share count drove a portion of the increase in earnings per share. These earnings improvements were partially offset by:
Product mix: Higher raw material costs in recent years have led some customers to modify their product design and replace higher cost components with lower cost (and lower margin) components.
Price competition: In 2006, we experienced price competition in certain markets, and we responded by selectively reducing prices of certain of our products.
Higher net interest expense ($5 million)
Segment Results (continuing operations)
In the following section we discuss 2006 sales and EBIT from continuing operations for each of our segments. Reported amounts for 2006 and 2005 have been retrospectively adjusted to reflect only continuing operations and also to reflect an organizational change that moved a few small formed wire operations from Commercial Fixturing & Components to Industrial Materials. We provide additional detail about segment results and a reconciliation of segment EBIT to consolidated EBIT in Note O to the financial statements on page 92.
Residential Furnishings
| | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
| | | EBIT
| | | EBIT
Margins
| | Year ended December 31, 2006 | | $ | 2,425 | | | $ | 229 | | | 9.4 | % | Year ended December 31, 2005 | | | 2,298 | | | | 158 | | | 6.9 | % | | | |
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| | | | Increase | | $ | 127 | | | $ | 71 | | | | | | | |
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| | | | % increase | | | 6 | % | | | 45 | % | | | | Internal sales growth | | | 1 | % | | | | | | | | | | | | | | | | | | | | | Acquisitions (net of restructuring & divestitures) | | | 5 | % | | | | | | | | | | | | | | | | | | | | |
Residential Furnishings sales increased in 2006, primarily from acquisitions. Internal sales grew slightly during the year, mainly due to inflation in our carpet underlay business and unit growth in upholstered furniture components. However, weak demand and price competition in the U.S. bedding market, in addition to de-contenting by some of our customers (those who have chosen to replace higher cost components with lower cost components) has offset much of the internal sales gains.
EBIT and EBIT margins increased versus 2005 due to several factors:
Lower restructuring-related charges, net of gains from asset sales ($7 million)
Lower workers’ compensation expense ($11 million)
Operational benefits from the restructuring
Improved market conditions in our carpet underlay businesses
These improvements were partially offset by lower bedding volume, increased price competition, and higher energy and transportation costs. We aggressively protected our bedding market share during 2006 as we dealt with price competition and de-contenting by our customers.
Commercial Fixturing & Components
| | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
| | | EBIT
| | | EBIT
Margins
| | Year ended December 31, 2006 | | $ | 861 | | | $ | 60 | | | 7.0 | % | Year ended December 31, 2005 | | | 886 | | | | 34 | | | 3.9 | % | | | |
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| | | | Increase (decrease) | | $ | (25 | ) | | $ | 26 | | | | | | | |
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| | | | % increase (decrease) | | | (3 | )% | | | 76 | % | | | | Internal sales decline | | | (1 | )% | | | | | | | | | | | | | | | | | | | | | Acquisitions (net of restructuring & divestitures) | | | (2 | )% | | | | | | | | | | | | | | | | | | | | |
Sales decreased in 2006 from a combination of lower unit volume and the impact, as expected, of restructuring activity. Demand for custom fixtures and displays softened in the latter part of the year, but this decrease was partially offset by continued growth in our businesses supplying office furniture components.
Despite lower sales, EBIT and EBIT margins increased versus 2005 primarily due to:
Lower restructuring-related charges, net of gains from asset sales ($13 million)
Lower workers’ compensation expense ($5 million)
Operational benefits from the restructuring
Industrial Materials
| | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
| | | EBIT
| | | EBIT
Margins
| | Year ended December 31, 2006 | | $ | 784 | | | $ | 55 | | | 7.0 | % | Year ended December 31, 2005 | | | 886 | | | | 103 | | | 11.8 | % | | | |
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| | | | Decrease | | $ | (102 | ) | | $ | (48 | ) | | | | | | |
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| | | | % decrease | | | (11 | )% | | | (47 | %) | | | | Internal sales decline | | | (10 | )% | | | | | | | | | | | | | | | | | | | | | Acquisitions (net of restructuring & divestitures) | | | (1 | )% | | | | | | | | | | | | | | | | | | | | |
Internal sales were down for the year due, in roughly equal parts, to deflation and lower unit volumes. Volume declines resulted primarily from continued weakness in U.S. bedding demand (which impacts our wire operations) and lower production levels in the automotive industry (which impacts our tubing businesses).
EBIT and EBIT margins decreased versus 2005 largely from reduced sales, lower profitability at the rod mill, and higher raw material costs. Lower restructuring-related expenses ($4 million), lower workers’ compensation costs ($3 million), and restructuring benefits offset some of this decline.
In 2005, segment margins were above our long-range, targeted levels mainly due to unusual market conditions that resulted in unsustainably high margins on our rod production. In 2006, the market began returning to more normal levels.
Specialized Products
| | | | | | | | | | | | | (Dollar amounts in millions) | | Sales
| | | EBIT
| | | EBIT
Margins
| | Year ended December 31, 2006 | | $ | 621 | | | $ | 43 | | | 6.9 | % | Year ended December 31, 2005 | | | 610 | | | | 31 | | | 5.1 | % | | | |
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| | | | Increase | | $ | 11 | | | $ | 12 | | | | | | | |
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| | | | % increase | | | 2 | % | | | 39 | % | | | | Internal sales decline | | | (2 | )% | | | | | | | | | | | | | | | | | | | | | Acquisitions (net of restructuring & divestitures) | | | 4 | % | | | | | | | | | | | | | | | | | | | | |
Sales grew in 2006 as a result of acquisitions completed in late 2005, but this growth was partially offset by slightly lower internal sales. In our automotive business, market weakness in North America, particularly in larger vehicles that contain more seats with higher-end features, was partially offset by growth in Asia and Europe. Machinery volume was stronger in 2006, reflecting improved demand for bedding related equipment in certain international markets. In the Commercial Vehicle Products business, demand for fleet van interiors (racks, shelving, and cabinets installed in service vans) also improved in 2006.
EBIT and EBIT margins increased versus 2005 in part due to:
Lower restructuring-related costs ($6 million)
Earnings from acquired companies
Lower workers’ compensation expense ($2 million)
Operational benefits from the restructuring
Currency factors ($6 million) offset some of these gains.
Results from Discontinued Operations
Full year earnings from discontinued operations, net of tax, increased $32 million, from $33 million in 2005 to $65 million in 2006. The earnings improvement was primarily due to:
Improved market conditions in the Prime Foam and Fibers businesses
Reimbursement of a duty on Canadian lumber imports (of $10 million)
Lower restructuring-related costs (of $9 million)
LIQUIDITY AND CAPITALIZATION In this section, we provide details, reflecting both continuing and discontinued operations, about our: Debt position and total capitalization We use cash for the following: Finance capital requirements (e.g. productivity, growth and acquisitions) OurTypically, our operations provide much of the cash we require. Over the prior three-year period, werequire, and debt may also increased net debtbe used to fund a portion of our requirements. In keepingneeds. However in 2008, cash proceeds from completed divestitures were another significant source of funds. We ended 2008 with our stated financial goals, net debt to net capital has increased from 21.9% at the beginning of 2005 to 28.0% at the end of 2007.28.4%, below our long-term target, and in line with year-end 2007 levels. Our long-term target is to have net debt as a percent of net capital in the 30%-40% range, while maintaining our longstanding “single A” debt rating. Therange. Page 57 presents a table on page 40 showsof the calculation of net debt as a percent of net capital forat the end of the past two years.
Uses of Cash Finance Capital Requirements We use cash to fund internal growth through capital expenditures and external growth through acquisitions. For the next year or two, years, we plan to focus primarily on improving returns of the existing asset base. That pursuitbase will require much of senior management’s time and attention, and revenue growth during this period is expectedcontinue to be minimal.our primary focus. However, cash is available to fund selective growth, both internally (through capital expenditures) and externally (through acquisitions).
 
PART II Capital expenditures areinclude investments we make to modernize, maintain, and expand manufacturing capacity. With our move to role-based portfolio management, we expect to beare more restrictive in funding capital projects. Accordingly, we expect future capital spending to be less than in recent years. Capital spending in 20082009 is expected to be reduced to about $135$100 million. Growth capital, which hashad historically been available to all our businesses, willis now be predominantly earmarked for our “growth”Grow business units. Operations that are a part of our “core”designated as Core business units will receive capital primarily for productivity enhancements, but expansion capital will beis limited. 
We have also set a higher bar for acquisitions, and do not anticipate many coming to fruition over the next one to two years. Longer term, we plan to pursue disciplined growth through fewer, but more strategic, opportunities. We will seek acquisitions within our growth businesses, and will also look for longer-term opportunities to enter new, higher growth markets that meet strict criteria. As a result of the new acquisition criteria, no significant acquisitions were completed in 2008. In 2007, we acquired three businesses that shouldwere expected to add about $100 million to annual revenue ($20 million in Commercial Fixturing & Components, $50 million in Industrial Materials, and $30 million in Specialized Products). These businesses: establish a foothold in Asian production of office chair controls
manufacture coated wire products, including racks for dishwashers, and present Leggett with expanded technologies and cross-segment selling opportunities
broaden our suite of products for commercial vehicle interiors
| n | | established a foothold in Asian production of office chair controls |
| n | | manufactured coated wire products, including racks for dishwashers, and presented Leggett with expanded technologies and cross-segment selling opportunities |
| n | | broadened our suite of products for commercial vehicle interiors |
We acquired five businesses in 2006 with annualized sales ofthat were expected to add about $75 million.million to annual revenue. All these transactions occurred in the Residential Furnishings segment. These acquisitions: broadened our geographic presence and product offerings in geo components
expanded our rubber carpet underlay business
added to our international spring operations
In 2005, we acquired 12 companies with annualized sales (in continuing operations) of approximately $240 million ($170 million in Residential Furnishings and $70 million in Specialized Products). These businesses primarily:
Expanded our presence in the conversion and distribution of geo components
Broadened our offerings for carpet underlay
Added to our business that manufactures and installs products for commercial vehicles
| n | | broadened our geographic presence and product offerings in geo components |
| n | | expanded our rubber carpet underlay business |
| n | | added to our international spring operations |
In addition to the initial cash outlays for acquisitions (shown in the accompanying chart), we also assumed debt of $35$5 million $5 million,in 2006 and $24 million respectively in the 2005, 2006, and 2007 transactions.2007. We provide additional details about acquisitions in Note G to the financial statementsConsolidated Financial Statements on page 75.100. PART II Pay Dividends  
With improvementplanned improvements in returns, the expecteda decrease in capital spending and acquisitions, and the plannedcompletion of the divestitures, we shouldexpect (and have recently had) more available cash to return to shareholders. Higher annual dividends are one means by which that will occur. WithIn late 2007, we raised our quarterly dividend to $.25 per share, a 39% increase over the Januaryprevious $.18 per share quarterly rate. This marks, for 2008, $.25Leggett’s 37th consecutive annual dividend payment, we have now raisedincrease at an average compound annual dividends for 37 consecutive years at a compound annualgrowth rate of over 14%. We expect to spend approximately $165 million on dividends in 2008. Long-term, ourOur targeted dividend payout is approximately 50-60% of net earnings, but has been higher recently and will likely be higherremain above targeted levels for the next twofew years. Maintaining and increasing the dividend remains a high priority. We expect to spend approximately $155 million on dividends in 2009 (less than in 2008 because of share repurchases). Cash from operations has been in recent years, and is expected to continue to be, sufficient to fund both capital expenditures and dividends.Repurchase Stock  
Share repurchases are the other means by which we return cash to shareholders. During the past three years, we purchasedrepurchased a total of 2733 million shares of our stock and PART II reduced outstanding shares by about 12%15%. We repurchased a record 16 million of these shares in 2008, or approximately 9% of shares outstanding, at an average per-share price of $18.70. As we have consistently stated, we intend to use the majority of divestiture proceeds to buy shares of our stock, and to date, we have used approximately half of those funds. The cash availableremaining purchases are expected to repurchase shares will fluctuate each year, primarily from changes in earnings, timing of divestitures, andbe completed at a slower pace than previously anticipated as we cautiously await indications that the pace of spending on acquisitions.economy is improving. Although no specific repurchase schedule has been established, we have a standing authorization frombeen authorized by the Board of Directors to repurchase up to 10 million shares annually. In addition to the standing authorization, the Board has approved the repurchase of up to an additional 20 million shares in 2008 at management’s discretion, limited to the amount of divestiture proceeds.2009. Cash from Operations 
Cash from operations is our primary source of funds. ChangesEarnings and changes in earnings and working capital levels are the two broad factors that generally have the greatest impact on our cash from operations. 
Cash from operations in 2008, though strong, was $178 million lower than in 2007 primarily due to a smaller year-over-year decrease in working capital. Extremely weak market demand in the latter part of 2008 (which resulted from the financial and credit market distress and related impact on U.S. and global economies) negatively impacted earnings. We expect this demand weakness to continue in 2009. Working capital decreased in 2008 (the changes by major category are reflected in the table below). Fourth quarter production cuts resulted in lower inventory levels (versus the prior year). Accounts receivable also declined primarily due to extremely weak sales late in the year. We continue to aggressively manage our operations in an effort to further improve our working capital position. Some of our specific actions include reducing raw material purchases and production levels where appropriate, increasing collection efforts to ensure customer accounts are paid on time, and optimizing payment terms with our vendors. In 2007, cash from operations increased 28% from$135 million versus 2006, as significant working capital improvements offset lower earnings. The working capital improvements resulted primarily from better accounts receivable collections and ongoing efforts to manage inventories. In 2006, cash from operations increased 7% over 2005. Earnings grew in 2006, but were partially offset by increasedPART II
The following table presents key working capital due to higher inventories. This inventory increase resulted primarily from softening demand in certain markets and opportunistic pre-buysmeasures at the end of raw materials.the past two years. | | | | | | | | | | | | | | | | | | | Amount (in millions)
| | # Days Outstanding
| | | | 2008
| | 2007(4)
| | Decrease
| | 2008
| | 2007
| | Decrease
| Accounts Receivable, net(1) | | $ | 550 | | $ | 630 | | $ | 80 | | 49 | | 54 | | 5 | Inventory, net(2) | | $ | 495 | | $ | 591 | | $ | 96 | | 53 | | 62 | | 8 | Accounts Payable (3) | | $ | 175 | | $ | 225 | | $ | 50 | | 19 | | 24 | | 5 |
| (1) | The accounts receivable ratio represents the days of sales outstanding calculated as: ending net accounts receivable ÷ (net sales ÷ number of days in the year). |
| (2) | The inventory ratio represents days of inventory on hand calculated as: ending net inventory ÷ (cost of goods sold ÷ number of days in the year). |
| (3) | The accounts payable ratio represents the days of payables outstanding calculated as: ending accounts payable ÷ (cost of goods sold ÷ number of days in the year). |
| (4) | 2007 amounts have been retrospectively adjusted to move the Coated Fabrics business unit to held for sale and discontinued operations in the first quarter of 2008. |
Working capital levels vary by segment, with the requirements ofsegment. The Commercial Fixturing & Components generallysegment typically has relatively higher than overall company averages. Accountsaccounts receivable balances in this segment are typically higher due to the longer credit terms required to service certain customers of the Fixture & Display business.group. This business group also generally requires higher inventory investments due to the custom nature of its products, longer manufacturing lead times (in certain cases), and the needs of many customers to receive large volumes of product within short periods of time. In theAt December 31, 2007, balance sheet, we have classifiedreclassified certain assets and liabilities ofrelated to the planned divestitures as amounts “held for sale.”sale” and ceased depreciation and amortization on those assets. Depreciation and amortization are no longer recognized on these assets; accordingly, we anticipate that theexpense in 2008 depreciation and amortization expense will be approximately $35was $43 million lower than 2007.in 2007, primarily as a result of the divestitures.
PART II Capitalization This table presents key debt and capitalization statistics at the end of the three most recent years. | | (Dollar amounts in millions) | | 2007 | | 2006 | | 2005 | | | 2008
| | | 2007
| | | 2006
| | Long-term debt outstanding: | | | | | | | | | Scheduled maturities | | $ | 796 | | | $ | 906 | | | $ | 922 | | | $ | 774 | | | $ | 796 | | | $ | 906 | | Average interest rates * | | | 4.9 | % | | | 5.0 | % | | | 5.0 | % | | Average maturities in years * | | | 6.8 | | | | 7.4 | | | | 7.8 | | | Average interest rates(1) | | | | 4.7 | % | | | 4.9 | % | | | 5.0 | % | Average maturities in years(1) | | | | 6.4 | | | | 6.8 | | | | 7.4 | | Revolving credit/commercial paper | | | 205 | | | | 154 | | | | — | | | | 77 | | | | 205 | | | | 154 | | | | |
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| Total long-term debt | | | 1,001 | | | | 1,060 | | | | 922 | | | | 851 | | | | 1,001 | | | | 1,060 | | Deferred income taxes and other liabilities | | | 139 | | | | 163 | | | | 156 | | | | 134 | | | | 139 | | | | 163 | | Shareholders’ equity | | | 2,133 | | | | 2,351 | | | | 2,249 | | | | 1,653 | | | | 2,133 | | | | 2,351 | | | | |
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| Total capitalization | | $ | 3,273 | | | $ | 3,574 | | | $ | 3,327 | | | $ | 2,638 | | | $ | 3,273 | | | $ | 3,574 | | | | |
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| Unused committed credit: | | | | | | | | | Long-term | | $ | 395 | | | $ | 246 | | | $ | 400 | | | $ | 523 | | | $ | 395 | | | $ | 246 | | Short-term | | | — | | | | — | | | | — | | | | – | | | | – | | | | – | | | | |
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| Total unused committed credit | | $ | 395 | | | $ | 246 | | | $ | 400 | | | $ | 523 | | | $ | 395 | | | $ | 246 | | | | |
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| Current maturities of long-term debt | | $ | 89 | | | $ | 52 | | | $ | 99 | | | $ | 22 | | | $ | 89 | | | $ | 52 | | | | |
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| Cash and cash equivalents | | $ | 205 | | | $ | 132 | | | $ | 65 | | | $ | 165 | | | $ | 205 | | | $ | 132 | | | | |
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| Ratio of earnings to fixed charges ** | | | 2.5 | x | | | 5.0 | x | | | 5.9 | x | | Ratio of earnings to fixed charges(3) | | | | 3.6 | x | | | 2.6 | x | | | 5.0 | x | | | |
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*(1) | These calculations include current maturities, but exclude commercial paper.paper to reflect the averages of outstanding debt with scheduled maturities. |
**(2) | Shareholder’s Equity decreased $480 million in 2008, primarily reflecting net share repurchases of $234 million, dividends of $165 million, and currency impacts of $146 million. |
| (3) | Fixed charges include interest expense, capitalized interest, andplus implied interest included in operating leases. Earnings consist principally of income from continuing operations before income taxes, plus fixed charges. |
The next table shows the percent of long-term debt to total capitalization at December 31, 2008 and 2007, and 2006. We show this calculationcalculated in two ways: Long-term debt to total capitalization as reported in the previous table. Long-term debt to total capitalization each reduced by total cash and increased by current maturities of long-term debt. PART II We believe that adjusting this measure for cash and current maturities allows a more meaningful comparison to recent periods during which cash fluctuatedfluctuates significantly. We use these adjusted measures to monitor our financial leverage. | | (Dollar amounts in millions) | | 2007 | | 2006 | | | 2008
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| | Long-term debt | | $ | 1,001 | | | $ | 1,060 | | | $ | 851 | | | $ | 1,001 | | Current debt maturities | | | 89 | | | | 52 | | | | 22 | | | | 89 | | Cash and cash equivalents | | | (205 | ) | | | (132 | ) | | | (165 | ) | | | (205 | ) | | | |
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| Net debt | | $ | 885 | | | $ | 980 | | | $ | 708 | | | $ | 885 | | | | |
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| Total capitalization | | $ | 3,273 | | | $ | 3,574 | | | $ | 2,638 | | | $ | 3,273 | | Current debt maturities | | | 89 | | | | 52 | | | | 22 | | | | 89 | | Cash and cash equivalents | | | (205 | ) | | | (132 | ) | | | (165 | ) | | | (205 | ) | | | |
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| Net capitalization | | $ | 3,157 | | | $ | 3,494 | | | $ | 2,495 | | | $ | 3,157 | | | | |
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| Long-term debt to total capitalization | | | 30.6 | % | | | 29.7 | % | | | 32.2 | % | | | 30.6 | % | | | |
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| Net debt to net capitalization | | | 28.0 | % | | | 28.0 | % | | | 28.4 | % | | | 28.0 | % | | | |
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Total debt (which includes long-term debt and current debt maturities) decreased $22$217 million in 2007.2008. During the year, we added $64 million of debt, including $51 million ofreduced our commercial paper borrowings by $128 million and repaid $86paid off $89 million of other long-term debt that came due. Since 2003, we’ve issued $730 million of fixed rate debt with an average remaining life at the end of 2007 of 7.5 years, and a weighted average interest rate of 4.7%. To further facilitate the issuance of debt and other securities, $300 million remains available under a shelf registration.
In addition to issuing long-term notes, weWe can also raise cash by issuing up to $600 million in commercial paper through a program that is backed by a $600 million revolving credit commitmentagreement with a syndicate of 16 lenders that terminates in 2012. We expect any commercial paper issued under this agreement to be classified as long-term debt since we intend to maintain or increase the balance until it is replaced with long-term notes. At the endDecember 31, 2008, $77 million of 2007, $205 million in commercial paper was outstanding under this program.program and is classified as long-term debt. Cash proceeds from the divestitures (discussed on page 35) were used to reduce our outstanding commercial paper balance during 2008. Our commercial paper program has continued to operate efficiently during the recent disruption of global credit markets. However, the change in the credit markets and our short-term ratings downgrade (discussed below) has resulted in an increase of less than 100 basis points in the weighted average effective borrowing rate for the commercial paper issued. This would equate to an additional annual interest cost of less than $1 million based on the level of commercial paper that was issued at the end of 2008. In the event that the disruption in the credit markets was to become so severe that we were unable to issue commercial paper, we have the contractual right to draw funds directly on our revolving credit agreement. In such event, the cost of borrowing under the credit agreement could be higher than the cost of commercial paper borrowing. The revolving credit agreement provides for the ability to replace outstanding letters of credit. To the extent that we utilize these commitments for letters of credit, it would reduce our commercial paper/loan capacity by a corresponding amount. Over the last two years the list of specific banks participating in our revolving credit agreement has modestly changed as some banks have assigned their lending commitments under the agreement to other participating banks or new participants, all of which have assumed the respective lending obligations. These assignments and assumptions have had no material impact on the availability of credit under the agreement or on the terms or covenants of the agreement. Based on the information currently available to us, we believe that the participating banks continue to have the ability to meet their obligations under the agreement.
PART II With both the shelf registrationanticipated operating cash flows and the commercial paper program in place, we believe we have sufficient funds available to support our ongoing operations, return cash to shareholders,pay dividends, repurchase stock, and fund plannedfuture growth. Most of our debt has fixed repayment dates. At the end of 2007,2008, this debt consisted primarily of term notes. We have maintained a single Adebt rating in the “A” category (from both Moody’s and Standard &and Poor’s) on our term notes and public debt for over a decade. OurOn November 12, 2008, Moody’s downgraded our long term debt rating from “A2” to “A3” and our commercial paper program carriesrating from “P1” to “P2” citing accelerating contraction in residential and automotive related consumer spending. On November 25, 2008, S&P downgraded our long-term corporate credit and senior unsecured debt ratings from “A” to “A-” and our short-term and commercial paper ratings from “A-1” to “A-2” citing weak market conditions and financial policies that include a high dividend payout and share repurchases. In addition, both Moody’s and S&P assigned a negative outlook to each of their respective ratings. The ratings downgrades have not had an impact on our ability to issue commercial paper, but they have increased, and are expected to continue to increase, our cost of short-term borrowing. Also, if we choose to borrow under our $600 million revolving credit agreement, which expires in 2012, our interest cost under this agreement would be increased approximately five basis points as a result of the new ratings. We do not expect the ratings downgrades to have a material impact on our liquidity or our ability to access the long-term credit market. These credit ratings reflect the views of the rating agency only. An explanation of P-1 and a Standard & Poor’sthe significance of these ratings may be obtained from the rating of A-1. This discussion isagency. These ratings are not a recommendation to buy, sell or hold the company’s public debt. Furthermore, these ratings are subject to revision and withdrawalsecurities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency if it decides that the circumstances warrant the change. Each rating agency may have different criteria for evaluating company risk and, therefore, each rating should be evaluated separately. PART II CONTRACTUAL OBLIGATIONS The following table summarizes our future contractual obligations and commitments: | | | | | | Payments Due by Period
| | | | Payments Due by Period
| Contractual Obligations
| | Total
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Than 1
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Than 5
Years
| | (Dollar amounts in millions) | | | | | Long-term debt* | | $ | 1,074 | | $ | 79 | | $ | 25 | | $ | 207 | | $ | 763 | | Long-term debt(1) | | | $ | 869 | | $ | 21 | | $ | 10 | | $ | 279 | | $ | 559 | Capitalized leases | | | 15 | | | 10 | | | 5 | | | — | | | — | | | 5 | | | 1 | | | 4 | | | — | | | — | Operating leases | | | 148 | | | 42 | | | 57 | | | 32 | | | 17 | | | 130 | | | 37 | | | 50 | | | 27 | | | 16 | Purchase obligations** | | | 403 | | | 403 | | | — | | | — | | | — | | Interest payments *** | | | 309 | | | 53 | | | 86 | | | 72 | | | 98 | | Purchase obligations(2) | | | | 315 | | | 315 | | | — | | | — | | | — | Interest payments(3) | | | | 251 | | | 49 | | | 72 | | | 65 | | | 65 | Deferred income taxes | | | 42 | | | — | | | — | | | — | | | 42 | | | 17 | | | — | | | — | | | — | | | 17 | Other obligations (including pensions and reserves for tax contingencies) | | | 96 | | | 7 | | | 13 | | | 9 | | | 67 | | Other obligations(4) | | | | 116 | | | 3 | | | 13 | | | 7 | | | 93 | | | |
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| Total contractual cash obligations | | $ | 2,087 | | $ | 594 | | $ | 186 | | $ | 320 | | $ | 987 | | $ | 1,703 | | $ | 426 | | $ | 149 | | $ | 378 | | $ | 750 | | | |
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*(1) | The long-term debt payment schedule presented above could be accelerated if we were not able to make the principal and interest payments when due. Long-term debt includes $205$77 million of outstanding commercial paper, which is generally due overnight.paper. We have classified commercial paper as long-term debt (due in 3-5 years) since the commercial paper program is supported by a $600 million revolving credit agreement which terminates in 2012. |
**(2) | Purchase obligations primarily include open short-term (30-120 days) purchase orders that arise in the normal course of operating our facilities. |
***(3) | Interest payments are calculated on debt outstanding at December 31, 20072008 at rates in effect at the end of the year. These totals include interest on the $205$77 million of outstanding commercial paper discussed above. |
| (4) | Other obligations include uncertain tax positions of $38 million in the “More Than 5 Years” column because these obligations are long-term in nature and actual payment dates can not be specifically determined. Other obligations also include our current estimate of minimum contributions to defined benefit pension plans. |
PART II CRITICAL ACCOUNTING POLICIES AND ESTIMATES We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. To do so, we must make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosures. If we used different estimates or judgments our financial statements would change, and some of those changes could be significant. Our estimates are frequently based upon historical experience and are considered by management, at the time they are made, to be reasonable and appropriate. Estimates are adjusted for actual events, as they occur. “Critical accounting estimates” are those that are: a) subject to uncertainty and change, and b) of material impact to our financial statements. Listed here are the estimates and judgments which we believe could have the most significant effect on our financial statements: Asset and goodwill impairment Workers’ compensation, general liability, and employee benefit programs We provide additional details regarding our significant accounting policies in Note A to the financial statementsConsolidated Financial Statements on page 60. 82.Asset and Goodwill Impairment Goodwill is assessed for impairment annually, and as triggering events occur. Other long-lived assets are tested for recoverability at year-end and whenever events or circumstances indicate the carrying value may not be recoverable. The assessments are performed to ensure that future cash flows (from use of the assets) exceed the assets’ book value. In doing so, we make judgments and estimates about: a) the future cash flows expected from use (and eventual disposition) of the assets, and b) the assets’ fair market values. If actual future cash flows are lower than our estimates, we could incur future (unanticipated) impairment charges. Our ten reporting units for goodwill purposes (related to continuing operations) are one level below our operating segments, and are the same as the business groups disclosed in “Item 1. Business.” We assess our reporting units for possible goodwill impairment on an annual basis and whenever events warrant. In doing so, we estimate the fair market values of our reporting units using a discounted cash flow model and comparable market values for similar entities using price to earnings ratios. Key assumptions and estimates used in the cash flow model include discount rate, internal sales growth, margins, capital expenditure requirements, and working capital requirements. Recent performance of the reporting unit is an important factor, but not the only factor, in our assessment. PART II The annual goodwill impairment review performed in June 2008 indicated no goodwill impairments. As a result of the deterioration in the economic and financial climate in the fourth quarter of 2008, interim goodwill and other long-lived asset impairment analyses were performed in the fourth quarter. The goodwill analysis confirmed that estimated fair values exceeded carrying values for all reporting units. Future cash flow assumptions were reduced to reflect lower sales and production levels for 2009 and 2010, returning to historical levels thereafter. Other long-lived asset impairment charges of $12 million were recorded in the fourth quarter 2008. If actual results differ from estimates used in these calculations, the Company could incur future (unanticipated) impairment charges. Throughout 2008, we recorded $26 million of goodwill and $6 million of other long-lived asset impairments related to businesses held for sale as updated estimates of fair value less costs to sell became more certain. In June 2007, we performed the annual goodwill impairment review and determined that no impairments were indicated for any reporting units. In the fourth quarter 2007, we performed an interim goodwill impairment review as a result of the November Strategic Plan which was considered a “triggering event” as defined in FAS 142. The fair value of each reporting unit was adjusted to reflect the significant decrease in the Company’s overall market value since June. In addition, individual reporting units impacted by the November2007 Strategic Plan were revised to reflect updated margin and growth assumptions. Since the carrying amounts of our Fixture & Display and Aluminum Products reporting units were determined to exceed their fair values, we performed the second step of the goodwill impairment test to determine the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying value of the goodwill. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The fair values of the reporting units identified above were determined using the discounted cash flow method and comparable market values for similar entities using price to earnings ratios. Application of the discounted cash flow method requires significant projections and assumptions. The significant assumptions used in this approach include estimates of our future revenues, profits, capital expenditures, working capital requirements, operating plans, industry data and other relevant factors. As a result of this interim review,process, we determined that impairments were indicated forrecorded goodwill impairment charges in the Aluminum and Fixturesfourth quarter of 2007 related to the Fixture & Display and Aluminum Products reporting units resulting in goodwill impairments of $83 million$143 and $143$83 million, respectively. In addition, we recorded goodwill and asset impairments of $51 million in the fourth quarter 2007 relating to other held-for-sale locations. Discounted cash flow projections for these two reporting units were based on 10-year financial forecasts. These forecasts were based on annual financial forecasts developed internally by management for use in managing the business. The significant assumptions of these forecasts included a compound annual growth rate during the 10 years of 5% and PART II 4% related to Fixture & Display and Aluminum Products, respectively. Terminal values for each reporting unit were calculated using a long-term growth rate of 3%. Future cash flows were discounted to present value using a discount rate of 12% for Fixture & Display and 13% for Aluminum Products. Actual results may differ materially from these assumptions. If actual results differ from estimates used in these calculations, we could incur future (unanticipated) impairment charges in the Fixture & Display reporting unit. Inventory In determining the value of inventories, we make assumptions about the value of products that are obsolete or slow-moving (i.e. not selling very quickly). If we have had no sales of a given product for 12 months, those items are generally deemed to have no value.value and are written down completely. If we have more than a one-year’s supply of a product, we value that inventory at net realizable value (what we think we will recover). ; historically, this write-down has been approximately 35% on average. At December 31, 2007,2008, we had reduced inventory values of continuing operations by $43$38 million (approximately 6% of the total inventory not held for sale valued on a FIFO basis)inventory) to account for obsolete and slow moving items. At December 31, 2007, an adjustment of $43 million had been recognized, resulting in a decrease in the valuation allowance during 2008 of $5 million. A summary of the inventory valuation allowance by segment is as follows (in millions): | | | | | | | | | Segment | | 2008 | | 2007 | | Residential Furnishings | | $ | 9 | | $ | 13 | (1) | Commercial Fixturing & Components | | | 14 | | | 14 | | Industrial Materials | | | 4 | | | 3 | | Specialized Products | | | 11 | | | 13 | | | | |
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| Total | | $ | 38 | | $ | 43 | | | | |
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| (1) | The 2007 valuation allowance in Residential Furnishings includes $3 million for the Coated Fabrics business that we intend to divest as part of the 2007 Strategic Plan, but that did not meet the requirements for held for sale and discontinued operations treatment until 2008. |
These adjustments relate to a broad range of products. The majority of the Residential Furnishings valuation allowance relates to innerspring products, steel mechanisms and hardware for furniture, and structural fabrics for mattresses and furniture. The Commercial Fixturing & Components valuation allowance is primarily for store fixtures and displays, and to a lesser extent, office components and chair controls. The Industrial Materials valuation allowance is mostly for wire retail fixtures. The Specialized Products valuation allowance is for automotive lumbar and seat suspension systems, digital printing machinery, and component parts used in the assembly of van interiors. Workers’ Compensation, General Liability, and Employee Benefit Programs We are substantially self-insured for certain costs related to workers’ compensation, automobile, product and general liability, property, and medical insurance. When estimating the potential amounts we might have to pay (since we are self-insured), we consider a number of factors, including historical claim experience, demographic factors, and potential recoveries from third party insurance carriers. In 2005, we significantly increased our reserve for workers’ compensation to reflect higher costs of medical care and longer durations of claims (as more treatment options are available and can continue over longer periods of time).
PART II Over the past five years, we have incurred, on average, $27$26 million annually for costs associated with these insurance programs. Average year-to-year variation over the past five years has been approximately $3 million. At December 31, 2007,2008, we had accrued $72$71 million to cover future self-insurance liabilities. Credit Losses Our customers are diverse. Many are small-to-medium sized companies, and some are highly leveraged. Bankruptcy can occur with some of these customers relatively quickly and with little warning. We regularly evaluate the ability of our customers to pay what they owe us. When we become aware of a specific customer’s potential inability to pay, we record a bad debt reserve for the amount we believe may not be collectible. We consider factors such as the length of time that receivables are past due, the financial health of the customer, industry and macroeconomic considerations, and historical experience. The total amount of credit losses over the last three years is $19$35 million. At December 31, 2007,2008, our reserves for doubtful accounts not held for sale totaled $23$38 million (about 3.4%6% of our accounts and notes receivable of $685$634 million). Pension Accounting For our pension plans, we must estimate the cost of benefits to be provided (well into the future) and the current value of those benefit obligations. The two most critical assumptions affecting these estimates are the discount rate and the expected return on assets. Other assumptions include rates of compensation increases, withdrawal and mortality rates, and retirement ages. These estimates impact the pension expense or income we recognize and our reported benefit obligations. We have recognized the impact of individual plans’ funded amounts on the balance sheet, and continuein 2008, changed to use a December 31 measurement date (from September 30 measurement date for our most significant plans.in previous years). To reflect market interest rates, in 2007 we increased2008 the discount rate for our major pension plans from 5.75% towas unchanged at 6.0%. This follows an increase in 20062007 from 5.5%5.75% to 5.75%6.0%. We continued to assumeFor 2008, we assumed long-term returns of 8.0% on the assets of these plans, which was identical to our 20062007 and 20052006 assumptions. Sensitivity to changes in the critical assumptions for our major plans is as follows: Discount rate: a 25 basis point decrease in the discount rate would increase pension expense by approximately $.3$.5 million and decrease the plans’ funded status by approximately $5 million. Expected return on assets: a 25 basis point reduction in the expected return on assets would increase pension expense by $.5$.4 million, but have no effect on the plans’ funded status. We expect that the combined contribution in 20082009 to our defined benefit plans will total approximately $2$3 million. On December 31, 2006, our defined benefit Retirement Plan covering non-union employees was frozen, thereby eliminating the future accrual of benefits to participants and closing the plan to future enrollment. This plan change reduced the projected benefit obligation by $12 million, and reduced 2007 pension expense by $4 million. Participants were moved to a defined contribution plan with a company contribution based upon the age of the participant. PART II Income Taxes In the ordinary course of business, we must make estimates of the tax treatment of many transactions, even though the ultimate tax outcome may remain uncertain for some time. These estimates become part of the annual income tax expense reported in our financial statements. Subsequent to year end, we finalize our tax analysis and file income tax returns. Tax authorities periodically audit these income tax returns and examine our tax filing positions, including (among other things) the timing and amounts of deductions, and the allocation of income among tax jurisdictions. We adjust income tax expense in our financial statements in the periods in which the actual outcome becomes more certain. At December 31, 2007, five2008, six open years were undergoing (or subject to) audit by the United States Internal Revenue Service (IRS) and Canada Revenue Agency. In 2005, auditsAmended federal returns were filed with the IRS in both countries2008 for the years 20002004 tax year with a refund of $3 million expected. These filings are subject to review by the IRS, with the largest issue related to a research and 2001 were settled in all material respects with no significant adjustments. development credit. In 2006, the IRS examination for the years 2002 and 2003 was concluded. A final report was issued, and the net refund of approximately $11 million, plus interest, under review by the Joint Committee on Taxation as of December 31, 2006, was received in 2007. The largest issue pertained to a refund claim we made for a worthless stock deduction. The resolution of this item was reflected in 2006 as a reduction in the Company’s overall tax rate. Canada Revenue Agency examinations are underway for 2003 through 2006, which are at various stages of completion, but to date the Company is not aware of any material adjustments.
At December 31, 20072008 and 2006,2007, we had $25$24 million and $38$25 million, respectively, of net deferred tax assets on our balance sheet related to operating loss and tax credit carryforwards. The ultimate realization of these deferred tax assets is dependent upon the amount and source of future taxable income. Valuation reserves are established against future potential tax benefits to reflect the amounts that we believe have no more than a 50% probability of being realized. In addition, assumptions have been made regarding the non-repatriation of earnings from certain subsidiaries. Those assumptions may change in the future, thereby affecting future period results for the tax impact of such earnings. Contingencies Our disclosure and accrual of loss contingencies (i.e., losses that may or may not occur) are based on our assessment of the likelihood that the expenses will actually occur, and our estimate of the likely cost. Our estimates and judgments are subjective and can involve matters in litigation, the results of which are generally very unpredictable. The Company has been named as one of numerous defendants in several cases consolidated as Gray v. Derderian, Case No. 1:04-CV-312-L, U.S.D.C. R.I. This litigation resulted from a nightclub fire in West Warwick, Rhode Island involving multiple deaths and injuries. Along with other foam manufacturing defendants, the Company is alleged to have manufactured and sold bulk polyurethane foam to a foam fabricator in Rhode Island, who in turn, is alleged to have fabricated and sold foam sheets to the nightclub. The foam was among other materials alleged to have caught fire when pyrotechnics were ignited inside the nightclub. The plaintiffs are seeking monetary damages in an unspecified amount. The litigation is in its early stages. We believeCompany believes it did not manufacture the Companyfoam subject to the lawsuit and that it has raised valid defenses to the claims. We intend to continue vigorously defending these claims. The Company cannot reasonably estimate the possible loss or range of loss that may arise from this litigation. However,Nevertheless, with the Company’s consent, the PART II Company’s primary insurance coverages (includingcarrier reached a tentative settlement with counsel for all plaintiffs on April 29, 2008. If the settlement is approved by the court, the Company will pay a $2 million self-retention amount) are sufficientself-insured retention and the remainder of the $18.2 million settlement is the responsibility of the insurance carrier. The settlement is subject to satisfycontingencies, including approval by the latest settlement demand.court. Management does not believe the settlement or the outcome will have a material effect on the Company’s financial condition, operating cash flows or results of operation.operations. In 2005, we recordedOn February 5, 2009, a receivable of $5 million related to an ongoing international dispute over duties imposedshareholder derivative complaint was filed by the United StatesNew England Carpenters Pension Fund, which represented that it owns 3,000 shares of Leggett stock, in the Circuit Court of Jasper County, Missouri. The complaint is substantially similar to a lawsuit filed by the New England Carpenters Pension Fund in federal court on softwood lumber imported from Canada. In 2006September 4, 2008, which the U.S.plaintiff voluntarily dismissed on September 26, 2008 without prejudice to its right to re-file. However, this new lawsuit has fewer claims and Canada finalized an agreement to settle this dispute andasserts no federal causes of action. The action is purportedly brought on behalf of the Company, naming it as a result, we were refunded $21 million in dutiesnominal defendant and interest for our claim. The refund was recordednaming as income ($16 million in 2006defendants certain current and $5 million in 2005)former officers and is reflected in earnings from discontinued operations. Since this claim is now settled, we do not anticipate any further payments.directors of the Company.
The plaintiff alleges, among other things, that the individual defendants participated in the backdating of stock options, breached fiduciary duties, caused or allowed the Company to issue false and misleading financial statements and proxy statements, and sold Company stock while in possession of material non-public information. The plaintiff seeks, among other things, unspecified monetary damages against the individual defendants, certain equitable and other relief relating to the profits from the alleged improper conduct, the adoption of certain Company corporate governance proposals, the imposition of a constructive trust over the defendants’ stock options and proceeds, punitive damages, the rescission of certain unexercised options, and the reimbursement of litigation costs. The plaintiff is not seeking any monetary relief from the Company. Policies of directors and officers liability insurance are in force, subject to customary limits and exclusions. The complaint is based on a statistical analysis of stock option grants and Leggett stock prices that we believe is flawed. We believe this lawsuit does not take into consideration important aspects of Leggett’s stock option plans. For example, the plaintiff has noted only one set of stock option grants, made on December 30, 2005, within what we believe to be the applicable 5-year statute of limitations. These option grants were made in accordance with the Company’s Deferred Compensation Program, which (i) provided that options would be dated on the last business day of December, and (ii) was filed with the SEC on December 2, 2005 setting out the pricing mechanism well before the grant date. We provided plaintiff’s counsel with this publicly available documentation before they dismissed the prior federal court lawsuit. The Company expects that the outcome of this litigation will not have a material adverse effect on its financial condition, operating cash flows or results of operations. PART II NEW ACCOUNTING STANDARDS In September 2006,On January 1, 2008, the Company adopted the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No.158(SFAS) No. 158 (SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS 158Plans” provision which requires the Company to recognize the funded status of each of its defined benefit postretirement plans as an asset or liability on the balance sheet. This requirement was effective as of December 31, 2006, and is reflected in the accompanying financial statements. SFAS 158 will also require the Companyit to measure the funded status of its plans as of year end beginning with theits December 31, 2008 balance sheet. The Company currently usespreviously used September 30 as the measurement date for its most significant plans. The Company has chosen to perform a measurement that covers the 15-month period of October 1, 2007 through December 31, 2008. AUpon implementation, a proportionate allocation iswas made to cover the net benefit expense or income for the transition period and that amount will bethe Company recorded as an adjustmenta $.5 million (net of tax) increase to beginning retained earnings on January 1,
2008. The Company has evaluatedpreviously adopted the effectprovisions of this standardstatement which were effective December 31, 2006 to recognize the funded status of its defined benefit plans in the balance sheet and determinedto recognize as a component of other comprehensive income changes in funded status from year to year that it willare not have a material impact on the Company’s financial statements.otherwise reflected in income. In September 2006,As discussed in Note T to the FASB also issuedConsolidated Financial Statements on page 126, the provisions of SFAS No. 157 (SFAS 157), “Fair Value Measurements.”Measurements” were adopted on January 1, 2008 for financial assets and liabilities of the Company. SFAS 157 provides guidance for using fair value to measure assets and liabilities and requires additional disclosure about the use of fair value measures, the information used to measure fair value, and the effect fair value measurements have on earnings. The primary areas in which the Company utilizes fair value measures are valuing pension plan assets and liabilities, valuing hedge-related derivative financial instruments, allocating purchase price to the assets and liabilities of acquired companies, and evaluating long-term assets for potential impairment.disclosure. SFAS 157 does not require any new fair value measurements. SFAS 157 isalso has an effective for financial assets and liabilitiesdate of the Company beginning January 1, 2008. SFAS 157 is effective beginning January 1, 2009 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company has evaluated the effect of this standard and does not believe that it will have a material impact on the Company’s financial statements.
In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other instruments at fair value, with the objective of improving financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. As the Company did not elect to fair value any of its financial instruments under the provisions of SFAS 159, isthe adoption of this statement, effective for the Company beginning January 1, 2008. The Company has evaluated the effect of this standard and determined that it will2008, did not have a materialan impact on the Company’s financial statements. In December 2007, the FASB issued SFAS No. 141 (R)141(R) (SFAS 141R), “Business Combinations,” which replaces SFAS 141. The new standard requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed. SFAS 141 (R)141R is effective on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141 (R)141R amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141 (R)141R would also apply the provisions of SFAS 141 (R). The141R. Because the adoption of SFAS 141 (R)141R will be applied prospectively, it is not expected to have a material impact on the Company’s financial statements. PART II In December 2007, the FASB also issued SFAS No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial Statements,” which seeks to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way as equity in their consolidated financial statements. SFAS 160 is also effective for the Company beginning January 1, 2009, and its adoption is not expected to have a material impact on the Company’s financial statements. In March 2008, the FASB issued SFAS No. 161 (SFAS 161), “Disclosures about Derivative Instruments and Hedging Activities.” The new standard requires enhanced disclosures about derivative instruments and hedging activities and their effects on an entity’s financial position, financial performance, and cash flows. The statement requires disclosure of objectives and strategies for derivative instruments, disclosure of the fair values of derivative instruments and their gains and losses in a tabular format, disclosure of contingent derivative features that are credit-risk related, and requires cross-referencing within footnotes if the required disclosures are presented in more than one footnote. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Its adoption is not expected to have a material impact on the Company’s financial statements. In April 2008, FASB Staff Position (FSP) SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets” was issued. This FSP amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under SFAS No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” The FSP requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141, “Business Combinations.” The FSP is effective for the Company beginning January 1, 2009, and the guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. The Company does not expect the adoption of FSP SFAS No. 142-3 to have a material effect on its consolidated financial statements. In May 2008, the FASB issued SFAS No. 162 (SFAS 162), “The Hierarchy of Generally Accepted Accounting Principles.” This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. It was effective 60 days following the Securities and Exchange Commission’s approval on September 16, 2008, of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” This statement will not result in a change in the Company’s current practice. In October 2008, FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” was issued. This FSP clarifies the application of FASB Statement No. 157, “Fair Value Measurements,” and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. This FSP was effective upon issuance. Its adoption did not have a material effect on the Company’s consolidated financial statements. PART II In December 2008, FSP SFAS No. 132(R)-1, “Employers’ Disclosure about Postretirement Benefit Plan Assets” was issued. This FSP requires additional disclosure surrounding plan assets of defined benefit pension plans in the Company’s December 31, 2009 financial statements. Additional disclosures related to benefit plan assets include information about investment policies and strategies, the fair value of each major category of plan assets, and information that enables users of financial statements to assess the inputs and valuation techniques used to develop fair value measurements of plan assets. Its adoption is not expected to have a material impact on the Company’s financial statements. Item 7A.Quantitative and Qualitative Disclosures About Market Risk. (Unaudited) (Dollar amounts in millions) INTEREST RATESInterest Rates
The table below provides information about the Company’s debt obligations sensitive to changes in interest rates. Substantially all of the debt shown in the table below is denominated in United States dollars. (See discussion of Net Investment Hedges provided in Note R on page 97 of the Notes to Consolidated Financial Statements).Dollars. The fair value of fixed rate debt was less than its carrying value by $19.9$107.1 at December 31, 2007,2008, and less than its carrying value by $43.5$45.1 at December 31, 2006.2007. The decrease in the fair market value of the Company’s debt is primarily due to the increase in credit spreads over risk-free rates as compared to the prior year-end. The fair value of fixed rate debt at December 31, 2008 was calculated usingbased upon a Bloomberg secondary market rate. The fair value of fixed rate debt at December 31, 2007 was based upon the U.S. Treasury Bondbond rate as of December 31, 2007 and December 31, 2006 for similar remaining maturities, plus an estimated “spread” over such Treasury securities representing the Company’s interest costs under its medium-term note program. A 50 basis point increase in the interest rate would result in an additional $20.8 reduction in the fair value of fixed rate debt.costs. The fair value of variable rate debt is not significantly different from its recorded amount. | | | | Scheduled Maturity Date
| | | | | | | Scheduled Maturity Date
| | | | | | Long-term debt as of December 31,
| | 2008
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| | 2010
| | 2011
| | 2012
| | Thereafter
| | 2007
| | 2006
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| | 2010
| | 2011
| | 2012
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| | Thereafter
| | 2008
| | 2007
| | Principal fixed rate debt | | $ | 71.5 | | | $ | 15.0 | | | | — | | | | — | | | | — | | | $ | 730.0 | | | $ | 816.5 | | | $ | 846.7 | | | $ | 15.0 | | | $ | — | | | $ | — | | | $ | — | | | $ | 200.0 | | | $ | 530.0 | | | $ | 745.0 | | | $ | 816.5 | | Average interest rate | | | 6.31 | % | | | 7.26 | % | | | — | | | | — | | | | — | | | | 4.72 | % | | | 4.91 | % | | | 4.99 | % | | | 7.26 | % | | | — | % | | | — | % | | | — | % | | | 4.70 | % | | | 4.73 | % | | | 4.77 | % | | | 4.91 | % | Principal variable rate debt | | $ | .5 | | | $ | .5 | | | $ | 8.5 | | | $ | .5 | | | $ | .5 | | | $ | 21.5 | | | $ | 32.0 | | | $ | 73.1 | | | | .5 | | | | 8.5 | | | | .5 | | | | .5 | | | | — | | | | 21.5 | | | | 31.5 | | | | 32.0 | | Average interest rate | | | 3.72 | % | | | 3.72 | % | | | 3.51 | % | | | 3.72 | % | | | 3.72 | % | | | 3.60 | % | | | 3.58 | % | | | 3.91 | % | | | 3.50 | % | | | 1.43 | % | | | 3.50 | % | | | 3.50 | % | | | — | % | | | 1.88 | % | | | 1.83 | % | | | 3.58 | % | Miscellaneous debt* | | | $ | 240.8 | | | $ | 192.2 | | | | | 97.1 | | | | 240.8 | | | | | |
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| Total debt | | | $ | 1,089.3 | | | $ | 1,112.0 | | | | | 873.6 | | | | 1,089.3 | | Less: current maturities | | | $ | (88.7 | ) | | $ | (52.0 | ) | | | | (22.4 | ) | | | (88.7 | ) | | | | |
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| Total long-term debt | | | $ | 1,000.6 | | | $ | 1,060.0 | | | | $ | 851.2 | | | $ | 1,000.6 | | | | | |
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| * | Includes $205$77 and $154$205 of commercial paper in 20072008 and 2006,2007, respectively, supported by a $600 million revolving credit agreement which terminates in 2012. |
DERIVATIVE FINANCIAL INSTRUMENTSDerivative Financial Instruments
The Company is subject to market and financial risks related to interest rates, foreign currency, and commodities. In the normal course of business, the Company utilizes derivative instruments (individually or in combinations) to reduce or eliminate these risks.risks, The Company seeks to use derivative contracts that qualify for hedge accounting treatment; however, some instruments may not qualify for hedge accounting treatment. It PART II is the Company’s policy not to speculate inusing derivative instruments. Information regarding cash flow hedges, fair value hedges and net investment hedges is provided in Note R on page 97123 to the Notes to the Consolidated Financial Statements and is incorporated by reference into this section. INVESTMENT IN FOREIGN SUBSIDIARIESInvestment in Foreign Subsidiaries
The Company views its investment in foreign subsidiaries as a long-term commitment, and does not hedge translation exposures, except for the net investment hedge discussed in Note R on page 97123 to the Notes to the Consolidated Financial Statements. The investment in a foreign subsidiary may take the form of either permanent capital or notes. The Company’s net investment (i.e., total assets less total liabilities subject to translation exposure) in foreign subsidiaries, including those held for sale, subject to translation exposure at December 31 is as follows: | Functional Currency
| | 2007
| | 2006
| | 2008
| | 2007
| European Currencies | | | $ | 287.4 | | $ | 328.5 | Canadian Dollar | | $ | 301.4 | | $ | 316.9 | | | 205.1 | | | 301.4 | European Currencies | | | 328.5 | | | 299.5 | | Chinese Renminbi | | | | 160.0 | | | 125.8 | Mexican Peso | | | 87.7 | | | 79.8 | | | 51.6 | | | 87.7 | Chinese Renminbi | | | 125.8 | | | 115.7 | | Other | | | 70.7 | | | 65.9 | | | 44.5 | | | 70.7 | | | |
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| Total | | $ | 914.1 | | $ | 877.8 | | $ | 748.6 | | $ | 914.1 | | | |
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Item 8.Financial Statements and Supplementary Data. The Consolidated Financial Statements, Financial Statement Schedule and supplementary datafinancial information included in this Report are listed in Item 15 and begin immediately after Item 15, and are incorporated herein by reference. Item 9.Changes Inin and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. Item 9A.Controls and Procedures. Effectiveness of the Company’s Disclosure Controls and Procedures An evaluation as of December 31, 20072008 was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded the Company’s disclosure controls and procedures were effective, as of December 31, 2007,2008, to provide assurance that information that is required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, PART II processed, summarized, and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures, include without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control over Financial Reporting and Auditor’s Attestation Report Management’s Annual Report on Internal Control over Financial Reporting can be found on page 53,75, and the Report of Independent Registered Public Accounting Firm regarding the effectiveness of the Company’s internal control over financial reporting can be found on page 5476 of this Form 10-K. Each is incorporated by reference into this Item 9A. Changes in the Company’s Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter endingended December 31, 20072008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B.Other Information. Amendment to Bylaws.Change in Director Nominees
On February 21, 200819, 2009, the Board of Directors amendednominated all of the Company’s current directors to stand for re-election, except Raymond F. Bentele. Section 2.3 of our Bylaws. The amendments include, but are not limitedBylaws states that no director upon reaching the age of 72 shall stand for election to the following: | (i) | Section 1.5 was amended to provide that no proxy given for vote at a shareholder meeting shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy; |
| (ii) | Section 2.1 was amended to delete the provision that the number of directors would be eleven in the absence of the Board setting a number of directors; |
| (iii) | Section 2.3 was amended to add the Chief Executive Officer to the list of persons who can request a waiver of the director retirement age provision; |
| (iv) | Section 2.6 was amended to require mandatory, standing Audit, Compensation and Nominating and Corporate Governance Committees, and to provide that the Chief Executive Officer will be a member of the Executive Committee; and |
| (v) | Section 3.2 was amended to provide that the Board (but not the Chairman acting alone) can terminate officers with or without cause, and the Chief Executive Officer can terminate those officers that he has the authority to appoint. |
BecauseBoard unless a waiver is given. Mr. Bentele is 72 years old. The Board did not waive this Annual Reportprovision. Mr. Bentele will continue to serve as a director until his current term expires on Form 10-K is being filed within four business days from February 21, 2008, the amendments to the Bylaws are being disclosed hereunder rather than under Item 5.03 of Form 8-K. The Bylaws, as amended, are attached hereto and incorporated by reference as Exhibit 3.2
Amendment to 2004 Key Officers Incentive Plan Award Formula. On February 21, 2008 the Compensation Committee of the Board amended the Award Formula under the 2004 Key Officers Incentive Plan (“Plan”). Reference is made to the Plan which was filed March 1, 2006 as Exhibit 10.13 to the Company’s Form 10-K. The Award Formula was amended to change the definition of “Return” by adjusting earnings before interest and taxes (EBIT) to add back, or exclude, all restructuring related costs and asset impairment charges incurred by the Company in the fourth quarter of 2007, as the formula relates to the 2007 calendar year cash awards. This Award Formula is applicable to ten executives including David S. Haffner, President and Chief Executive Officer; Karl G. Glassman, Executive Vice President and Chief Operating Officer; Matthew C. Flanigan, Chief Financial Officer; and Paul R. Hauser, Senior Vice President, President—Residential Furnishings Segment.May 7, 2009.
Because this Annual Report on Form 10-K is being filed within four business days from February 21, 2008, the amendments to the Award Formula are being disclosed hereunder rather than under Item 5.02(e) of Form 8-K. The Award Formula is attached hereto and incorporated by reference as Exhibit 10.9. Assignment and Assumption of Credit Agreement. On February 22, 2008 the Company consented to the assignment and assumption by certain banking institutions that are parties to the Company’s $600 million multi-currency revolving credit agreement, dated August 5, 2005, as amended (“Credit Agreement”). Bank of America, N.A. assigned $10 million of its $75 million lending commitment to Bank of Tokyo-Mitsubishi UFJ, Ltd., retaining a $65 million commitment. The Bank of New York assigned its $30 million lending commitment to Comerica Bank. Bank of Tokyo-Mitsubishi UFJ, Ltd. and Comerica Bank agreed to assume the respective obligations assigned to them under the Credit Agreement. Below is a listing of the current participating banks along with their respective commitments under the Credit Agreement.
| | | | Lender
| | Commitment
| JPMorgan Chase Bank, N.A. | | $ | 70,000,000 | Wachovia Bank, N.A. | | | 70,000,000 | Bank of America, N.A. | | | 65,000,000 | U.S. Bank National Association | | | 50,000,000 | Wells Fargo Bank, National Association | | | 50,000,000 | BNP Paribas | | | 40,000,000 | SunTrust Bank | | | 40,000,000 | HSBC Bank USA National Association | | | 40,000,000 | Toronto Dominion (Texas) LLC | | | 40,000,000 | Bank of Tokyo-Mitsubishi UFJ, Ltd. | | | 40,000,000 | Comerica Bank | | | 30,000,000 | UMB Bank | | | 30,000,000 | Arvest Bank | | | 20,000,000 | Bank of China, New York Branch | | | 15,000,000 | | | |
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| Total | | $ | 600,000,000 | | | |
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Reference is made to (i) the Credit Agreement, dated August 5, 2005 among the Company, Wachovia Bank, National Association as syndication agent, JPMorgan Chase Bank, N.A. as administrative agent, and the participating banking institutions, filed August 9, 2005 as Exhibit 10.1 to the Company’s Current Report on Form 8-K; (ii) the First Amendment to Credit Agreement, dated July 31, 2006, among the Company, JPMorgan Chase Bank, N.A., as administrative agent, and the participating banking institutions, filed August 3, 2006 as Exhibit 10.1 to the Company’s Form 10-Q; and (iii) the Second Amendment to Credit Agreement, dated May 1, 2007, among the Company, JPMorgan Chase Bank, N.A. as administrative agent, and the participating banking institutions, filed May 4, 2007 as Exhibit 10.3 to the Company’s Form 8-K.
The listed banks and/or their affiliates have provided, from time to time, and may continue to provide commercial banking and related services, as well as investment banking, financial advisory and other services to us and/or our affiliates, for which we have paid, and intend to pay, customary fees, and in some cases, out of pocket expenses.
Because this Annual Report on Form 10-K is being filed within four business days from February 22, 2008, the assignments and assumptions of the Credit Agreement are being disclosed hereunder rather than under Item 1.01 of Form 8-K. The Assignment and Assumption agreement between Bank of America, N.A. and Bank of Tokyo-Mitsubishi UFJ, Ltd., and the Assignment and Assumption agreement between The Bank of New York and Comerica Bank are attached hereto and incorporated herein as Exhibit 10.20.1 and Exhibit 10.20.2, respectively.
Change in Director Nominees. On February 21, 2008 the Board of Directors nominated all of the Company’s current directors to stand for re-election, except Harry M. Cornell, Jr. and Felix E. Wright. Section 2.3 of our By-laws states that no director upon reaching age 72 shall stand for election to the Board unless a waiver is given. Neither Mr. Cornell nor Mr. Wright requested a waiver and the Board did not waive this provision. Both Mr. Cornell and Mr. Wright will continue to serve as directors of the Company until their current term expires on May 8, 2008.
Because this Annual Report on Form 10-K is being filed within four business days from February 21, 2008,19, 2009, the change in director nominees is being disclosed hereunder rather than under Item 5.02(b) of Form 8-K.
PART III PART III Item 10.Directors, Executive Officers and Corporate Governance. The section entitled “Proposal No. 1—Election of Directors” and subsections entitled “Corporate Governance,” “Board and Committee Composition and Meetings,” “Consideration of Director Nominees” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 8, 2008,7, 2009, are incorporated by reference. Directors of the Company Directors are elected annually at the Annual Meeting of Shareholders and hold office until the next annual meeting of shareholders or until their successors are elected and qualified. All current directors, except Messrs. Cornell and Wright,Mr. Bentele, have been nominated for re-election at the Company’s Annual Meeting of Shareholders to be held May 8, 2008.7, 2009. If a nominated director fails to receive an affirmative majority of the votes cast in the director election, the director has agreed to submit a resignation to the Board. The Board, in its discretion, may accept the resignation. Brief biographies of the Company’s Board of Directors are provided below. Our employment agreements with Messrs. Haffner and Glassman (which expire May 7, 2009) provide that they may terminate the agreement if not elected as a director. (SeeSee the Exhibit Index on page 104131 for reference to the agreements.) Raymond F. Bentele,age 71,72, served as President and Chief Executive Officer of Mallinckrodt, Inc., a manufacturer of medical and specialty chemical products, from 1981 until his retirement in 1992. He serves as a director of The Mosaic Company, a producer of crop nutrient minerals, and AMCON Distributing Company, a distributor of food and beverage products. He was first elected as a director of the Company in 1995. Ralph W. Clark,age 67,68, was a Vice President of International Business Machines Corporation (IBM) from 1988 until 1994. He also served as Chairman of Frontec AMT Inc., a software company, until his retirement in 1998. Mr. Clark was first elected as a director of the Company in 2000. Harry M. Cornell, Jr.,age 79, is Chairman Emeritus of the Company’s Board of Directors. He has served the Company in various capacities since 1950, including President from 1960 to 1982 and Chief Executive Officer from 1960 to 1999. Mr. Cornell was Chairman of the Board from 1982 to 2002. He was first elected as a director of the Company in 1958.
Robert Ted Enloe, III,age 69,70, has been Managing General Partner of Balquita Partners, Ltd., a family securities and real estate investment partnership, since 1996. He also served as President and Chief Executive Officer of Optisoft, Inc., a manufacturer of intelligent traffic systems, from 2003 to 2005. He served as President and Interim CEO of Surgient Networks, Inc., a computer equipment and software company, during 2002. Mr. Enloe serves as a director of Silicon Laboratories Inc., a designer of mixed-signal integrated circuits, and Live Nation, Inc., a venue operator, promoter and producer of live entertainment events. He was first elected as a director of the Company in 1969. Richard T. Fisher,age 69,70, has been Senior Managing Director, Midwest Division of Oppenheimer & Co., an investment banking firm since 2002. He served as Managing Director of CIBC World Markets Corp., an investment banking firm, from 1990 to 2002. Mr. Fisher was first elected as a director of the Company in 1972.1972 and has served as Chairman of the Board since 2008. PART III Karl G. Glassman,age 49,50, was appointed Chief Operating Officer of the Company in 2006 and Executive Vice President in 2002. He previously served the Company as President of the Residential Furnishings Segment from 1999 to 2006, Senior Vice President from 1999 to 2002, and President of Bedding Components from 1996 through 1998. Mr. Glassman has served the Company in various capacities since 1982. He was first elected as a director of the Company in 2002. David S. Haffner,age 55,56, was appointed Chief Executive Officer of the Company in 2006 and has served as President of the Company since 2002. He previously served as the Company’s Chief Operating Officer from 1999 to 2006, Executive Vice President from 1995 to 2002 and has served the Company in other capacities since 1983. Mr. Haffner serves as a director of Bemis Company, Inc., a manufacturer of flexible packaging and pressure sensitive materials. Mr. Haffner was first elected as a director of the Company in 1995. Joseph W. McClanathan,age 55,56, has served as President and Chief Executive Officer of the Energizer BatteryHousehold Products Division of Energizer Holdings, Inc., a manufacturer of dry cell batteries and flashlights,portable power solutions, since January 2004.November 2007. Prior to his current position, he served Energizer as President and Chief Executive Officer of the Energizer Battery Division from 2004 to 2007, President, North America, from 2002 to 2004, and as Vice President, North America, from 2000 to 2002. He was first elected as a director of the Company in 2005. Judy C. Odom,age 55,56, served as Chairman of the Board and Chief Executive Officer of Software Spectrum, Inc., a computer software company, until 2002. She is a director of Harte Hanks Inc., a direct marketing company. Ms. Odom was first elected as a director of the Company in 2002. Maurice E. Purnell, Jr.,age 68,69, has been Of Counsel to the law firm of Locke Lord Bissell & Liddell LLP, or its predecessor firm, since 2002. He was2002, where he had been a partner of Locke Liddell from 1972 to 2002.since 1972. Mr. Purnell was first elected as a director of the Company in 1988. Phoebe A. Wood,age 54, is Vice Chairman and Chief Financial Officer of55, served in various capacities at Brown-Forman Corporation, a diversified consumer products manufacturer.manufacturer until her retirement in 2008. She was appointed Vice Chairman in 2007 and has served as Chief Financial Officer since 2001. She also served as Executive Vice President from 2001 to 2006.2007. Ms. Wood’s previous experience includesWood previously held various positions at Atlantic Richfield Company, an oil and gas company, from 1976 to 2000. Ms. Wood was first elected as a director of the Company in 2005. Felix E. Wright,age 72, has served as employee Chairman of the Company’s Board of Directors since 2002. He also served as Chief Executive Officer of the Company from 1999 to 2006, as Vice Chairman of the Company’s Board of Directors from 1999 to 2002 and as Chief Operating Officer from 1979 to 1999. Mr. Wright has served in various other capacities since 1959. He was first elected as a director of the Company in 1977.
Please see the “Supplemental Item” in Part I hereof, for a listing of and a description of the positions and offices held by the executive officers of the Company. The Company has adopted a code of ethics that applies to its chief executive officer, chief financial officer, principal accounting officer and corporate controller called the Leggett & Platt, Incorporated Financial Code of Ethics. The Company has also adopted a Code of Business Conduct and Ethics for directors, officers and employees and Corporate Governance Guidelines. The Financial Code of Ethics, the Code of Business Conduct and Ethics and the Corporate Governance Guidelines are available on the Company’s Internet website at http://www.leggett.com. Each of these documents is available in print to any shareholder,person, without charge, upon request. Such requests may be made to the Company’s Secretary at Leggett & Platt, Incorporated, No. 1 Leggett Road, Carthage, Missouri 64836. PART III The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K by posting any amendment or waiver to its Financial Code of Ethics, within four business days, on its website at the above address for at least a 12 month period. TheWe routinely post all material information to our website. However, the Company’s website does not constitute part of this Annual Report on Form 10-K. Item 11.Executive Compensation. The subsections entitled “Board and Committee Composition and Meetings” and “Director Compensation” together with the entire section entitled “Executive Compensation and Related Matters” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 8, 2008,7, 2009, are incorporated by reference. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Matters.
The entire sections entitled “Security Ownership” and “Equity Compensation Plan Information” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 8, 2008,7, 2009, are incorporated by reference. Item 13.Certain Relationships and Related Transactions, and Director Independence. The sectionsubsections entitled “Transactions with Related Persons”Persons,” “Director Independence” and the subsections entitled “Director Independence and Presiding Director,” “Board and Committee Composition and Meetings” and “Review of Related Person Transactions” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 8, 2008,7, 2009, are incorporated by reference. Item 14.Principal AccountingAccountant Fees and Services. The sectionsubsections entitled “Independent Auditor Fees“Audit and Non-Audit Fees” and “Pre-Approval Procedures for Audit and Non-Audit Services” in the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held on May 8, 2008, is7, 2009, are incorporated by reference. PART IV PART IV Item 15.Exhibits, Financial Statement Schedules. (a) Financial Statements and Financial Statement Schedules. The Reports, Financial Statements and Financial Statement Schedules listed below are included in this Form 10-K: Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2007
Consolidated Balance Sheets at December 31, 2007 and 2006
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2007
Consolidated Statements of Changes in Shareholders’ Equity for each of the years in the three-year period ended December 31, 2007
Notes to Consolidated Financial Statements
Quarterly Summary of Earnings (Unaudited)
Schedule II—Valuation and Qualifying Accounts and Reserves
We have omitted other information schedules because the information is inapplicable, not required, or in the financial statements or notes. (b) Exhibits—See Exhibit Index beginning on page 104.131. We did not file any other long-term debt instruments because the total amount of securities authorized under any of these instruments does not exceed ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of such instruments to the SEC upon request. PART IV MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGManagement’s Annual Report on Internal Control Over Financial Reporting
Management of Leggett & Platt, Incorporated is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Leggett & Platt’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that: Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Leggett & Platt; Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of Leggett & Platt are being made only in accordance with authorizations of management and directors of Leggett & Platt; and Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Leggett & Platt assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management (including ourselves), we conducted an evaluation of the effectiveness of Leggett & Platt’s internal control over financial reporting, as of December 31, 2007, 2008, based on the criteria inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under this framework, we concluded that Leggett & Platt’s internal control over financial reporting was effective as of December 31, 2007.2008.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued an attestation report on the Company’sLeggett & Platt’s internal control over financial reporting, as of December 31, 2007. Their2008, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appears inappearing on page 76 of this Form 10-K.
| | | | | | /s/ DAVID S. HAFFNER | | | | /s/ MATTHEW C. FLANIGAN | David S. Haffner President and Chief Executive Officer | | | | Matthew C. Flanigan Senior Vice President and Chief Financial Officer | | | | February 25, 200823, 2009 | | | | February 25, 200823, 2009 |
PART IV Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Leggett & Platt, Incorporated: In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) present fairly, in all material respects, the financial position of Leggett & Platt, Incorporated and its subsidiaries at December 31, 20072008 and 2006,2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20072008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,2008, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally with generally PART IV
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. | /s/ PRICEWATERHOUSECOOPERS LLP | | /S/ PRICEWATERHOUSECOOPERS LLP St. Louis, MO February 23, 2009 | February 25, 2008
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LEGGETT & PLATT, INCORPORATED Consolidated Statements of Operations | | | | Year ended December 31
| | Year ended December 31
| | (Amounts in millions, except per share data) | | 2007
| | 2006
| | 2005
| | 2008
| | 2007
| | 2006
| Net sales | | $ | 4,306.4 | | | $ | 4,333.0 | | $ | 4,257.5 | | $ | 4,076.1 | | | $ | 4,250.0 | | | $ | 4,266.9 | Cost of goods sold | | | 3,507.8 | | | | 3,523.6 | | | 3,478.3 | | | 3,384.9 | | | | 3,454.2 | | | | 3,464.3 | | | |
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| Gross profit | | | 798.6 | | | | 809.4 | | | 779.2 | | | 691.2 | | | | 795.8 | | | | 802.6 | Selling and administrative expenses | | | 440.6 | | | | 401.9 | | | 395.5 | | | 423.2 | | | | 429.7 | | | | 395.3 | Amortization of intangibles | | | 23.3 | | | | 15.8 | | | 7.8 | | | 24.5 | | | | 23.3 | | | | 15.7 | Impairment of goodwill | | | 142.6 | | | | — | | | — | | | — | | | | 142.6 | | | | — | Other expense, net | | | 14.6 | | | | 9.5 | | | 31.1 | | | 15.8 | | | | 9.3 | | | | 8.2 | | | |
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| Earnings from continuing operations before interest and income taxes | | | 177.5 | | | | 382.2 | | | 344.8 | | | 227.7 | | | | 190.9 | | | | 383.4 | Interest expense | | | 58.6 | | | | 54.2 | | | 45.7 | | | 48.4 | | | | 58.6 | | | | 54.2 | Interest income | | | 9.5 | | | | 6.4 | | | 6.6 | | | 8.7 | | | | 9.5 | | | | 6.4 | | | |
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| Earnings from continuing operations before income taxes | | | 128.4 | | | | 334.4 | | | 305.7 | | | 188.0 | | | | 141.8 | | | | 335.6 | Income taxes | | | 77.4 | | | | 98.8 | | | 87.6 | | | 65.1 | | | | 82.4 | | | | 99.5 | | | |
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| Earnings from continuing operations | | | 51.0 | | | | 235.6 | | | 218.1 | | | 122.9 | | | | 59.4 | | | | 236.1 | Earnings (loss) from discontinued operations, net of tax | | | (62.2 | ) | | | 64.7 | | | 33.2 | | | (18.5 | ) | | | (70.6 | ) | | | 64.2 | | | |
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| Net earnings (loss) | | $ | (11.2 | ) | | $ | 300.3 | | $ | 251.3 | | $ | 104.4 | | | $ | (11.2 | ) | | $ | 300.3 | | | |
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| Earnings per share from continuing operations | | | | | | | Basic | | $ | 0.28 | | | $ | 1.26 | | $ | 1.13 | | $ | 0.73 | | | $ | 0.33 | | | $ | 1.26 | | | |
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| Diluted | | $ | 0.28 | | | $ | 1.26 | | $ | 1.13 | | $ | 0.73 | | | $ | 0.33 | | | $ | 1.26 | | | |
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| Earnings (loss) per share from discontinued operations | | | | | | | Basic | | $ | (0.34 | ) | | $ | .35 | | $ | .17 | | $ | (0.11 | ) | | $ | (0.39 | ) | | $ | .35 | | | |
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| Diluted | | $ | (0.34 | ) | | $ | .35 | | $ | .17 | | $ | (0.11 | ) | | $ | (0.39 | ) | | $ | .35 | | | |
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| Earnings (loss) per share, net | | | | | | | Basic | | $ | (0.06 | ) | | $ | 1.61 | | $ | 1.30 | | $ | 0.62 | | | $ | (0.06 | ) | | $ | 1.61 | | | |
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| Diluted | | $ | (0.06 | ) | | $ | 1.61 | | $ | 1.30 | | $ | 0.62 | | | $ | (0.06 | ) | | $ | 1.61 | | | |
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The accompanying notes are an integral part of these financial statements. LEGGETT & PLATT, INCORPORATED Consolidated Balance Sheets | | | | December 31
| | | December 31
| | | (Amounts in millions, except per share data) | | 2007
| | 2006
| | | 2008
| | 2007
| | ASSETS | | | | | Current Assets | | | | | Cash and cash equivalents | | $ | 205.4 | | | $ | 131.9 | | | $ | 164.7 | | | $ | 205.4 | | Accounts and other receivables, net | | | 640.2 | | | | 853.8 | | | | 550.5 | | | | 640.2 | | Inventories | | | | | Finished goods | | | 348.3 | | | | 428.6 | | | | 309.4 | | | | 348.3 | | Work in process | | | 54.2 | | | | 97.9 | | | | 46.8 | | | | 54.2 | | Raw materials and supplies | | | 260.4 | | | | 370.9 | | | | 266.1 | | | | 260.4 | | LIFO reserve | | | (63.7 | ) | | | (71.1 | ) | | | (127.3 | ) | | | (63.7 | ) | | | |
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| Total inventories, net | | | 599.2 | | | | 826.3 | | | | 495.0 | | | | 599.2 | | Other current assets | | | 104.6 | | | | 82.1 | | | | 65.6 | | | | 104.6 | | Current assets held for sale | | | 285.0 | | | | — | | | | 31.0 | | | | 285.0 | | | | |
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| Total current assets | | | 1,834.4 | | | | 1,894.1 | | | | 1,306.8 | | | | 1,834.4 | | | Property, Plant and Equipment—at cost | | | | | Machinery and equipment | | | 1,157.7 | | | | 1,536.8 | | | | 1,103.4 | | | | 1,157.7 | | Buildings and other | | | 603.6 | | | | 723.3 | | | | 592.7 | | | | 603.6 | | Land | | | 49.7 | | | | 70.1 | | | | 44.7 | | | | 49.7 | | | | |
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| Total property, plant and equipment | | | 1,811.0 | | | | 2,330.2 | | | | 1,740.8 | | | | 1,811.0 | | Less accumulated depreciation | | | 1,084.1 | | | | 1,367.4 | | | | 1,059.4 | | | | 1,084.1 | | | | |
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| Net property, plant and equipment | | | 726.9 | | | | 962.8 | | | | 681.4 | | | | 726.9 | | Other Assets | | | | | Goodwill | | | 931.3 | | | | 1,149.3 | | | | 875.6 | | | | 931.3 | | Other intangibles, less accumulated amortization of $65.9 and $49.0 at December 31, 2007 and 2006, respectively | | | 232.2 | | | | 182.9 | | | Other intangibles, less accumulated amortization of $76.9 and $65.9 at December 31, 2008 and 2007, respectively | | | | 197.4 | | | | 232.2 | | Sundry | | | 78.2 | | | | 57.1 | | | | 70.5 | | | | 78.2 | | Non-current assets held for sale | | | 269.5 | | | | 19.1 | | | | 30.2 | | | | 269.5 | | | | |
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| Total other assets | | | 1,511.2 | | | | 1,408.4 | | | | 1,173.7 | | | | 1,511.2 | | | | |
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| TOTAL ASSETS | | $ | 4,072.5 | | | $ | 4,265.3 | | | $ | 3,161.9 | | | $ | 4,072.5 | | | | |
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | Current Liabilities | | | | | Current maturities of long-term debt | | $ | 88.7 | | | $ | 52.0 | | | $ | 22.4 | | | $ | 88.7 | | Accounts payable | | | 227.6 | | | | 259.0 | | | | 175.3 | | | | 227.6 | | Accrued expenses | | | 274.6 | | | | 268.0 | | | | 234.9 | | | | 258.7 | | Other current liabilities | | | 136.3 | | | | 112.2 | | | | 84.2 | | | | 152.2 | | Current liabilities held for sale | | | 72.4 | | | | — | | | | 7.4 | | | | 72.4 | | | | |
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| Total current liabilities | | | 799.6 | | | | 691.2 | | | | 524.2 | | | | 799.6 | | | Long-term Liabilities | | | | | Long-term debt | | | 1,000.6 | | | | 1,060.0 | | | | 851.2 | | | | 1,000.6 | | Other long-term liabilities | | | 96.3 | | | | 95.9 | | | | 116.3 | | | | 96.3 | | Deferred income taxes | | | 42.3 | | | | 67.1 | | | | 17.2 | | | | 42.3 | | Non-current liabilities held for sale | | | 1.0 | | | | — | | | | — | | | | 1.0 | | | | |
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| Total long-term liabilities | | | 1,140.2 | | | | 1,223.0 | | | | 984.7 | | | | 1,140.2 | | | Commitments and Contingencies | | | | | | Shareholders’ Equity | | | | | Capital stock | | | | | Preferred stock—authorized, 100.0 shares; none issued; Common stock—authorized, 600.0 shares of $.01 par value; 198.8 shares issued | | | 2.0 | | | | 2.0 | | | | 2.0 | | | | 2.0 | | Additional contributed capital | | | 500.0 | | | | 493.4 | | | | 496.1 | | | | 500.0 | | Retained earnings | | | 2,122.3 | | | | 2,270.7 | | | | 2,062.1 | | | | 2,122.3 | | Accumulated other comprehensive income | | | 193.5 | | | | 75.6 | | | | 11.4 | | | | 193.5 | | Less treasury stock—at cost (30.1 and 20.8 shares at December 31, 2007 and 2006, respectively) | | | (685.1 | ) | | | (490.6 | ) | | Less treasury stock—at cost (43.0 and 30.1 shares at December 31, 2008 and 2007, respectively) | | | | (918.6 | ) | | | (685.1 | ) | | | |
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| Total shareholders’ equity | | | 2,132.7 | | | | 2,351.1 | | | | 1,653.0 | | | | 2,132.7 | | | | |
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| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | $ | 4,072.5 | | | $ | 4,265.3 | | | $ | 3,161.9 | | | $ | 4,072.5 | | | | |
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The accompanying notes are an integral part of these financial statements. LEGGETT & PLATT, INCORPORATED Consolidated Statements of Cash Flows | | | | | | | | | | | | | | | | Year ended December 31
| | | (Amounts in millions) | | 2008
| | | 2007
| | | 2006
| | Operating Activities | | | | | | | | | | | | | Net earnings (loss) | | $ | 104.4 | | | $ | (11.2 | ) | | $ | 300.3 | | Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation | | | 115.9 | | | | 156.9 | | | | 156.6 | | Amortization | | | 24.5 | | | | 26.5 | | | | 18.8 | | Impairment charges: | | | | | | | | | | | | | Goodwill | | | 25.6 | | | | 243.0 | | | | — | | Other long-lived assets | | | 19.2 | | | | 44.1 | | | | 4.3 | | Writedown of inventories | | | 27.1 | | | | 22.5 | | | | 10.7 | | Net loss (gain) from sales of assets | | | 2.3 | | | | (35.8 | ) | | | (10.3 | ) | Deferred income tax expense (benefit) | | | 25.5 | | | | (56.1 | ) | | | 5.3 | | Stock-based compensation | | | 41.6 | | | | 49.0 | | | | 48.6 | | Other | | | (.3 | ) | | | (6.9 | ) | | | 8.6 | | Other changes, excluding effects from acquisitions and divestitures: | | | | | | | | | | | | | Decrease in accounts and other receivables | | | 54.1 | | | | 98.9 | | | | 11.1 | | Decrease (increase) in inventories | | | 49.9 | | | | 65.5 | | | | (61.2 | ) | Decrease (increase) in other current assets | | | 9.5 | | | | 10.5 | | | | (2.9 | ) | (Decrease) increase in accounts payable | | | (46.8 | ) | | | 13.0 | | | | (5.3 | ) | Decrease in accrued expenses and other current liabilities | | | (16.3 | ) | | | (6.2 | ) | | | (5.7 | ) | | | |
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| Net Cash Provided by Operating Activities | | | 436.2 | | | | 613.7 | | | | 478.9 | | Investing Activities | | | | | | | | | | | | | Additions to property, plant and equipment | | | (118.3 | ) | | | (148.8 | ) | | | (166.3 | ) | Purchases of companies, net of cash acquired | | | (10.3 | ) | | | (111.3 | ) | | | (83.2 | ) | Proceeds from sales of assets | | | 407.6 | | | | 111.9 | | | | 31.8 | | Other | | | (15.7 | ) | | | (9.8 | ) | | | (13.8 | ) | | | |
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| Net Cash Provided by (Used for) Investing Activities | | | 263.3 | | | | (158.0 | ) | | | (231.5 | ) | Financing Activities | | | | | | | | | | | | | Additions to debt | | | 248.0 | | | | 154.5 | | | | 187.0 | | Payments on debt | | | (523.8 | ) | | | (188.5 | ) | | | (114.0 | ) | Dividends paid | | | (165.1 | ) | | | (124.8 | ) | | | (121.1 | ) | Issuances of common stock | | | 5.9 | | | | 7.2 | | | | 10.6 | | Purchases of common stock | | | (296.5 | ) | | | (237.1 | ) | | | (150.3 | ) | Other | | | (2.0 | ) | | | (2.8 | ) | | | 1.7 | | | | |
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| Net Cash Used for Financing Activities | | | (733.5 | ) | | | (391.5 | ) | | | (186.1 | ) | | | |
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| Effect of Exchange Rate Changes on Cash | | | (6.7 | ) | | | 9.3 | | | | 5.7 | | | | |
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| (Decrease) increase in Cash and Cash Equivalents | | | (40.7 | ) | | | 73.5 | | | | 67.0 | | Cash and Cash Equivalents—Beginning of Year | | | 205.4 | | | | 131.9 | | | | 64.9 | | | | |
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| Cash and Cash Equivalents—End of Year | | $ | 164.7 | | | $ | 205.4 | | | $ | 131.9 | | | | |
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| Supplemental Information | | | | | | | | | | | | | Interest paid | | $ | 49.7 | | | $ | 59.9 | | | $ | 57.9 | | Income taxes paid | | | 51.6 | | | | 118.7 | | | | 136.9 | | Property, plant and equipment acquired through capital leases | | | 1.6 | | | | 3.5 | | | | 3.5 | | Liabilities assumed of acquired companies | | | .2 | | | | 47.9 | | | | 22.5 | | Long-term notes received for divestitures | | | 27.4 | | | | — | | | | 2.3 | |
The accompanying notes are an integral part of these financial statements. LEGGETT & PLATT, INCORPORATED Consolidated Statements of Cash FlowsChanges in Shareholders’ Equity | | | | | | | | | | | | | | | | Year ended December 31
| | | (Amounts in millions) | | 2007
| | | 2006
| | | 2005
| | Operating Activities | | | | | | | | | | | | | Net earnings (loss) | | $ | (11.2 | ) | | $ | 300.3 | | | $ | 251.3 | | Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation | | | 156.9 | | | | 156.6 | | | | 160.8 | | Amortization | | | 26.5 | | | | 18.8 | | | | 10.3 | | Impairment charges: | | | | | | | | | | | | | Goodwill | | | 243.0 | | | | — | | | | — | | Other long-lived assets | | | 44.1 | | | | 4.3 | | | | 24.3 | | Writedown of inventories | | | 22.5 | | | | 10.7 | | | | 24.9 | | Net gain from sales of assets | | | (35.8 | ) | | | (10.3 | ) | | | (4.9 | ) | Deferred income tax (benefit) expense | | | (56.1 | ) | | | 5.3 | | | | (35.6 | ) | Stock-based compensation | | | 49.0 | | | | 48.6 | | | | 44.8 | | Other | | | (6.9 | ) | | | 8.6 | | | | 2.6 | | Other changes, excluding effects from acquisitions and divestitures: | | | | | | | | | | | | | Decrease (increase) in accounts and other receivables | | | 98.9 | | | | 11.1 | | | | (18.0 | ) | Decrease (increase) in inventories | | | 65.5 | | | | (61.2 | ) | | | (50.4 | ) | Decrease (increase) in other current assets | | | 10.5 | | | | (2.9 | ) | | | 9.9 | | Increase (decrease) in accounts payable | | | 13.0 | | | | (5.3 | ) | | | — | | (Decrease) increase in accrued expenses and other current liabilities | | | (6.2 | ) | | | (5.7 | ) | | | 28.3 | | | | |
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| Net Cash Provided by Operating Activities | | | 613.7 | | | | 478.9 | | | | 448.3 | | Investing Activities | | | | | | | | | | | | | Additions to property, plant and equipment | | | (148.8 | ) | | | (166.3 | ) | | | (164.2 | ) | Purchases of companies, net of cash acquired | | | (111.3 | ) | | | (83.2 | ) | | | (181.0 | ) | Proceeds from sales of assets | | | 111.9 | | | | 31.8 | | | | 21.5 | | Other | | | (9.8 | ) | | | (13.8 | ) | | | (14.8 | ) | | | |
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| Net Cash Used for Investing Activities | | | (158.0 | ) | | | (231.5 | ) | | | (338.5 | ) | Financing Activities | | | | | | | | | | | | | Additions to debt | | | 154.5 | | | | 187.0 | | | | 246.0 | | Payments on debt | | | (188.5 | ) | | | (114.0 | ) | | | (433.0 | ) | Dividends paid | | | (124.8 | ) | | | (121.1 | ) | | | (118.4 | ) | Issuances of common stock | | | 7.2 | | | | 10.6 | | | | 9.5 | | Purchases of common stock | | | (237.1 | ) | | | (150.3 | ) | | | (236.4 | ) | Other | | | (2.8 | ) | | | 1.7 | | | | — | | | | |
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| |
|
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| |
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| Net Cash Used for Financing Activities | | | (391.5 | ) | | | (186.1 | ) | | | (532.3 | ) | | | |
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| |
|
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| |
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| Effect of Exchange Rate Changes on Cash | | | 9.3 | | | | 5.7 | | | | (3.9 | ) | | | |
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| |
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| Increase (decrease) in Cash and Cash Equivalents | | | 73.5 | | | | 67.0 | | | | (426.4 | ) | Cash and Cash Equivalents—Beginning of Year | | | 131.9 | | | | 64.9 | | | | 491.3 | | | | |
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| |
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| |
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| Cash and Cash Equivalents—End of Year | | $ | 205.4 | | | $ | 131.9 | | | $ | 64.9 | | | | |
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| |
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| Supplemental Information | | | | | | | | | | | | | Interest paid | | $ | 59.9 | | | $ | 57.9 | | | $ | 56.5 | | Income taxes paid | | | 118.7 | | | | 136.9 | | | | 138.9 | | Property, plant and equipment acquired through capital leases | | | 3.5 | | | | 3.5 | | | | 5.0 | | Liabilities assumed of acquired companies | | | 47.9 | | | | 22.5 | | | | 99.7 | |
| | | | | | | | | | | | | | | | Year ended December 31
| | | (Amounts in millions, except per share data) | | 2008
| | | 2007
| | | 2006
| | Common Stock | | | | | | | | | | | | | Balance, beginning and end of period | | $ | 2.0 | | | $ | 2.0 | | | $ | 2.0 | | | | |
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| Additional Contributed Capital | | | | | | | | | | | | | Balance, beginning of period | | $ | 500.0 | | | $ | 493.4 | | | $ | 464.4 | | Stock options and benefit plans transactions | | | 13.1 | | | | 21.4 | | | | 38.3 | | Treasury stock issued | | | (16.7 | ) | | | (16.2 | ) | | | (11.3 | ) | Tax (expense) benefit related to stock options | | | (.3 | ) | | | 1.4 | | | | 2.0 | | | | |
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| |
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| |
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| Balance, end of period | | $ | 496.1 | | | $ | 500.0 | | | $ | 493.4 | | | | |
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| |
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| |
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| Retained Earnings | | | | | | | | | | | | | Balance, beginning of period | | $ | 2,122.3 | | | $ | 2,270.7 | | | $ | 2,093.1 | | Adjustment to apply SFAS 158 measurement date provision | | | .5 | | | | — | | | | — | | Net earnings (loss) | | | 104.4 | | | | (11.2 | ) | | | 300.3 | | Cash dividends declared (per share: 2008—$1.00; 2007—$.78; 2006—$.67) | | | (165.1 | ) | | | (137.2 | ) | | | (122.7 | ) | | | |
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| Balance, end of period | | $ | 2,062.1 | | | $ | 2,122.3 | | | $ | 2,270.7 | | | | |
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| Treasury Stock | | | | | | | | | | | | | Balance, beginning of period | | $ | (685.1 | ) | | $ | (490.6 | ) | | $ | (376.8 | ) | Treasury stock purchased | | | (297.9 | ) | | | (245.0 | ) | | | (151.8 | ) | Treasury stock issued | | | 64.4 | | | | 50.5 | | | | 38.0 | | | | |
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|
| |
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| |
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| Balance, end of period | | $ | (918.6 | ) | | $ | (685.1 | ) | | $ | (490.6 | ) | | | |
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| |
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| Accumulated Other Comprehensive Income | | | | | | | | | | | | | Balance, beginning of period | | $ | 193.5 | | | $ | 75.6 | | | $ | 66.3 | | Changes in foreign currency translation adjustments, net investment and cash flow hedges, and defined benefit plans, net of tax | | | (182.1 | ) | | | 117.9 | | | | 29.1 | | Adjustment to initially apply SFAS 158 | | | — | | | | — | | | | (19.8 | ) | | | |
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| Balance, end of period | | $ | 11.4 | | | $ | 193.5 | | | $ | 75.6 | | | | |
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| Total Shareholders’ Equity | | $ | 1,653.0 | | | $ | 2,132.7 | | | $ | 2,351.1 | | | | |
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|
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| |
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| Comprehensive Income | | | | | | | | | | | | | Net earnings (loss) | | $ | 104.4 | | | $ | (11.2 | ) | | $ | 300.3 | | Foreign currency translation adjustments | | | (146.5 | ) | | | 94.0 | | | | 33.9 | | Net investment hedges | | | 2.3 | | | | (1.1 | ) | | | (1.1 | ) | Cash flow hedges | | | (1.9 | ) | | | 2.9 | | | | (5.6 | ) | Other | | | — | | | | .2 | | | | (.2 | ) | Defined benefit plans | | | (36.0 | ) | | | 21.9 | | | | 2.1 | | | | |
|
|
| |
|
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| |
|
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| Total Comprehensive (Loss) Income | | $ | (77.7 | ) | | $ | 106.7 | | | $ | 329.4 | | | | |
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The accompanying notes are an integral part of these financial statements. LEGGETT & PLATT, INCORPORATED
Consolidated Statements of Changes in Shareholders’ Equity
| | | | | | | | | | | | | | | | Year ended December 31
| | | (Amounts in millions, except per share data) | | 2007
| | | 2006
| | | 2005
| | Common Stock | | | | | | | | | | | | | Balance, beginning and end of period | | $ | 2.0 | | | $ | 2.0 | | | $ | 2.0 | | | | |
|
|
| |
|
|
| |
|
|
| Additional Contributed Capital | | | | | | | | | | | | | Balance, beginning of period | | $ | 493.4 | | | $ | 464.4 | | | $ | 452.5 | | Stock options and benefit plans transactions | | | 21.4 | | | | 38.3 | | | | 18.8 | | Treasury stock issued | | | (16.2 | ) | | | (11.3 | ) | | | (9.0 | ) | Tax benefit related to stock options | | | 1.4 | | | | 2.0 | | | | 2.1 | | | | |
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|
| |
|
|
| |
|
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| Balance, end of period | | $ | 500.0 | | | $ | 493.4 | | | $ | 464.4 | | | | |
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| |
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| |
|
|
| Retained Earnings | | | | | | | | | | | | | Balance, beginning of period | | $ | 2,270.7 | | | $ | 2,093.1 | | | $ | 1,961.5 | | Net earnings (loss) | | | (11.2 | ) | | | 300.3 | | | | 251.3 | | Cash dividends declared (per share: 2007—$.78; 2006—$.67;
2005—$.63) | | | (137.2 | ) | | | (122.7 | ) | | | (119.7 | ) | | | |
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| |
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| |
|
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| Balance, end of period | | $ | 2,122.3 | | | $ | 2,270.7 | | | $ | 2,093.1 | | | | |
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|
| |
|
|
| |
|
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| Treasury Stock | | | | | | | | | | | | | Balance, beginning of period | | $ | (490.6 | ) | | $ | (376.8 | ) | | $ | (185.2 | ) | Treasury stock purchased | | | (245.0 | ) | | | (151.8 | ) | | | (238.9 | ) | Treasury stock issued | | | 50.5 | | | | 38.0 | | | | 47.3 | | | | |
|
|
| |
|
|
| |
|
|
| Balance, end of period | | $ | (685.1 | ) | | $ | (490.6 | ) | | $ | (376.8 | ) | | | |
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|
| |
|
|
| |
|
|
| Accumulated Other Comprehensive Income | | | | | | | | | | | | | Balance, beginning of period | | $ | 75.6 | | | $ | 66.3 | | | $ | 82.3 | | Changes in foreign currency translation adjustments, net investment and cash flow hedges, and defined benefit plans, net of tax | | | 117.9 | | | | 29.1 | | | | (16.0 | ) | Adjustment to initially apply SFAS 158 | | | — | | | | (19.8 | ) | | | — | | | | |
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| |
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| |
|
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| Balance, end of period | | $ | 193.5 | | | $ | 75.6 | | | $ | 66.3 | | | | |
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|
| |
|
|
| |
|
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| Total Shareholders’ Equity | | $ | 2,132.7 | | | $ | 2,351.1 | | | $ | 2,249.0 | | | | |
|
|
| |
|
|
| |
|
|
| Comprehensive Income | | | | | | | | | | | | | Net earnings (loss) | | $ | (11.2 | ) | | $ | 300.3 | | | $ | 251.3 | | Foreign currency translation adjustments | | | 94.0 | | | | 33.9 | | | | (21.9 | ) | Net investment hedges | | | (1.1 | ) | | | (1.1 | ) | | | 2.8 | | Cash flow hedges | | | 2.9 | | | | (5.6 | ) | | | 4.3 | | Other | | | .2 | | | | (.2 | ) | | | — | | Defined benefit plans | | | 21.9 | | | | 2.1 | | | | (1.2 | ) | | | |
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|
| |
|
|
| |
|
|
| Total Comprehensive Income | | $ | 106.7 | | | $ | 329.4 | | | $ | 235.3 | | | | |
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| |
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| |
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|
The accompanying notes are an integral part of these financial statements.
Leggett & Platt, Incorporated Notes to Consolidated Financial Statements (Dollar amounts in millions, except per share data) December 31, 2008, 2007 2006 and 20052006 A—Summary of Significant Accounting Policies PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Leggett & Platt, Incorporated and its majority-owned subsidiaries (the Company). To facilitate timely financial reporting, many of the Company’s subsidiaries outside of the United States are consolidated as of and for a fiscal year ended November 30. Management does not expect foreign exchange restrictions to significantly impact the ultimate realization of amounts consolidated in the accompanying financial statements for subsidiaries located outside the United States. All intercompany transactions and accounts have been eliminated in consolidation. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingencies. Actual results could differ from those estimates. CASH EQUIVALENTS: Cash equivalents include cash in excess of daily requirements which is invested in various financial instruments with original maturities of three months or less. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS: Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is an estimate of the amount of probable credit losses determined from individual account reviews by management. Account balances are charged off against the allowance when it is probable the receivable will not be recovered. INVENTORIES: All inventories are stated at the lower of cost or market. The Company generally uses standard costs which include materials, labor and production overhead.overhead at normal production capacity. The cost for approximately 49%60% of the Company’s inventories is determined by the last-in, first-out (LIFO) method and is primarily used to value domestic inventories with raw material content consisting of steel, wire, chemicals and foam scrap. TheFor the remainder of the inventories, the Company principally uses the first-in, first-out (FIFO) method, which is approximated by the Company’s standard costs, is principally used forcosts. For these inventories, the remainder of our inventories. The FIFO cost of inventories at December 31, 20072008 and 20062007 approximated expected replacement cost. Inventories are reviewed at least quarterly for slow moving and potentially obsolete items using actual inventory turnover, and if necessary, are written down to estimated net realizable value. Reserves for slow moving and obsolete inventory not held for sale on a FIFO basis were $42.6$38.0 and $32.0,$42.6, as of December 31, 2008 and 2007, and 2006, respectively.respectively, for a net decrease of $4.6. The 2007 valuation allowance included $3.4 for our Coated Fabrics business unit that was part of the 2007 Strategic Plan, but did not meet the criteria for held for sale at December 31, 2007. PLANNED DIVESTITURES: Significant accounting policies associated with a decision to dispose of a business are discussed below: Discontinued Operations—A business is classified as a discontinued operation when (i) the operations and cash flows of the business can be clearly distinguished and have been or will be eliminated from the Company’s ongoing operations; (ii) the business has either been disposed of or is classified as held for sale; and (iii) the Company will not have any significant continuing involvement in the operations of the business after the disposal transactions. Significant judgments are involved in determining whether a business meets the criteria for discontinued operations reporting and the period in which these criteria are met. If a business is reported as a discontinued operation, the results of operations through the date of sale, including any gain or loss recognized on the disposition, are presented on a separate line of the income statement. Interest on debt not directly attributable to the discontinued operation is not allocated to discontinued operations. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
Gains and losses related to the sale of business componentsbusinesses that do not meet the discontinued operation criteria are reported in continuing operations and separately disclosed if significant. Assets Held for Sale—An asset or business is classified as held for sale when (i) management commits to a plan to sell and it is actively marketed; (ii) it is available for immediate sale and the sale is expected to be completed within one year; and (iii) it is unlikely significant changes to the plan will be made or that the plan will be withdrawn. In isolated instances, assets held for sale may exceed one year due to events or circumstances beyond the Company’s control. Upon being classified as held for sale, the recoverability of the carrying value must be assessed. Evaluating the recoverability of the assets of a business classified as held for sale follows a defined order in which property and intangible assets subject to amortization are considered only after the recoverability of goodwill and other assets are assessed. After the valuation process is completed, the assets held for sale are reported at the lower of the carrying value or fair value less cost to sell and the assets are no longer depreciated or amortized. The assets and related liabilities are aggregated and reported on separate lines of the balance sheet. Assets Held for Use—If a decision to dispose of an asset or a business is made and the held for sale criteria are not met, it is considered held for use. Assets of the business are evaluated for recoverability in the following order: (i) assets other than goodwill, property and intangibles; (ii) property and intangibles subject to amortization; and (iii) goodwill. In evaluating the recoverability of property and intangible assets subject to amortization, in a held for use business, the carrying value is first compared to the sum of the undiscounted cash flows expected to result from the use and eventual disposition. If the carrying value exceeds the undiscounted expected cash flows, then a fair value analysis is performed. An impairment charge is recognized if the carrying value exceeds the fair value. There are inherent judgments and estimates used in determining future cash flows and it is possible that additional impairment charges may occur in future periods. In addition, the sale of assets can result in the recognition of a gain or loss that differs from that anticipated prior to the closing date. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost, less accumulated depreciation. Assets are depreciated by the straight-line method and salvage value, if any, is assumed to be minimal. Depreciable lives primarily range from 3 to 20 years for machinery and equipment with a weighted average life of 109 years; 10 to 40 years for buildings with a weighted average life of 2827 years; and 3 to 15 years for other items with a weighted average life of 67 years. Accelerated methods are used for tax purposes. Property is tested for recoverability at year end and whenever events or changes in circumstances indicate that its carrying value may not be recoverable as discussed above. GOODWILL: Goodwill results from the Company’s acquisition of existing businesses and is not amortized; it is assessed for impairment annually and as triggering events may occur. The corporationCompany performs its annual review in the second quarter of each year. Recoverability of goodwill is evaluated using a two-step process. The first step involves a comparison of the fair value of a reporting unit with its carrying value. Reporting units are business groups one level below the operating segment level for which discrete financial information is available and reviewed by segment management. If the carrying value of the group exceeds its fair value, the second step of the process is necessary and involves a comparison of the implied fair value and the carrying value of the goodwill of that group. If the carrying value of the goodwill of a group exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess. In evaluating the recoverability of goodwill, it is necessary to estimate the fair values of the business groups. In making this assessment, we estimate the fair market values of our reporting units using a discounted cash flow Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
model and comparable market values for similar entities using price to earnings ratios. Key assumptions and estimates used in the cash flow model include discount rate, internal sales growth, margins, capital expenditure requirements, and working capital requirements. Recent performance of the reporting unitgroup is an important factor, but not the only factor, in our assessment. There are inherent assumptions and judgments required in the analysis of goodwill impairment. It is possible that assumptions underlying the impairment analysis will change in such a manner that impairment in value may occur in the future. OTHER INTANGIBLE ASSETS: Substantially all of the Company’s other intangible assets are amortized using the straight-line method over their estimated useful lives ranging from 1 to 40 years with a weighted average of 14 years. Intangibles with indefinite lives are not amortized, but instead are reviewed for impairment annually or as triggering events may occur. Other intangible assets16 years and are evaluated for impairment using a process similar to that used in evaluating the recoverability of property, plant and equipment.
STOCK-BASED COMPENSATION: Effective January 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting For Stock-Based Compensation.” The Company selected the prospective transition method permitted by SFAS No. 148, “Accounting For Stock-Based Compensation—Transition and Disclosures.” Accordingly, after January 1, 2003 the Company began expensing the fair value of stock options granted and began expensing the 15% and 20% purchase discounts allowed for under its employee stock plans. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share-Based Payment,” a revision of SFAS 123. Given the previous adoption of SFAS 123, SFAS 123(R) did not have a significant impact on the Company’s financial statements. As part of its adoption of SFAS 123(R), the Company calculates any tax benefit windfalls or shortfalls for stock-based compensation under the provisions of SFAS 123(R). The earnings per shareCompensation expense for stock options granted is recognized using the years ended December 31, 2007, 2006 and 2005 werestraight line method over the same as ifvesting period of the options, fair value method under SFAS 123(R) had been applied to all outstanding and unvested awards.is calculated on the grant date using the Black-Scholes option-pricing model. SALES RECOGNITION: The Company recognizes sales when title and risk of loss pass to the customer. The terms of the Company’s sales are split approximately evenly between FOB shipping point and FOB destination. The timing of the Company’s recognition of FOB destination sales is determined based on shipping date and distance to the destination. The Company has no significant or unusual price protection, right of return or acceptance provisions with its customers nor is it the Company’s practice to replace goods damaged or lost in transit. Sales allowances and discounts can be reasonably estimated throughout the period and are deducted from sales in arriving at net sales. SHIPPING AND HANDLING FEES AND COSTS: The Company reports Shipping and Handling Fees and Costs in accordance with Emerging Issues Task Force (“EITF”) issue No. 00-10, “Accounting for Shipping and Handling Fees and Costs.” As such, in the Consolidated Statements of Operations all amounts billed to customers by the Company related to shipping and handling are included in “Net sales” and the Company’s shipping and handling costs are included in “Cost of goods sold.” RESTRUCTURING COSTS: Restructuring costs are items such as employee termination, contract termination, plant closure and asset relocation costs related to exit activities. Restructuring-related items are inventory writedowns and gains or losses from sales of assets recorded as the result of exit activities. The Company recognizes a liability for costs associated with an exit or disposal activity when the liability is incurred. Certain termination benefits for which employees are required to render service are recognized ratably over the respective future service periods. INCOME TAXES: The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax basis of the Company���sCompany’s assets and liabilities and are adjusted for changes in tax rates and laws, as appropriate. A valuation allowance is provided to reduce deferred tax assets when management cannot conclude that it is more likely than not that a tax benefit will be realized. A provision is also made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested. This provision would be substantially offset by available foreign tax credits. The calculation of the Company’s U.S., state, and foreign tax liabilities involves dealing with uncertainties in the application of complex global tax laws. The Company recognizes potential liabilities for anticipated tax issues which might arise in the U.S. and other tax jurisdictions based on management’s estimate of whether, and the extent to which, additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. Conversely, if the estimate of tax liabilities proves to be less than the ultimate tax assessment, a further charge to tax expense would result. CONCENTRATION OF CREDIT RISKS, EXPOSURES AND FINANCIAL INSTRUMENTS: The Company manufactures, markets, and distributes engineered products for the various end markets described in Note O. Operations are principally located in the United States, although the Company also has operations in Canada, Europe, Latin America, Asia, Australia and South Africa. The Company performs ongoing credit evaluations of its customers’ financial conditions and generally requires no collateral from its customers, some of which are highly leveraged. The Company maintains allowances for potential credit losses and such losses have generally been within management’s expectations. The Company has no material guarantees or liabilities for product warranties which would require disclosure under Financial Accounting Standards Board Interpretation (FIN) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” From time to time, the Company will enter into contracts to hedge foreign currency denominated transactions, natural gas purchases, and interest rates related to the Company’s debt. To minimize the risk of counter party default, only highly-rated financial institutions that meet certain requirements are used. The Company does not anticipate that any of the financial institution counter parties will default on their obligations. The carrying value of cash and short-term financial instruments approximates fair value due to the short maturity of those instruments. OTHER RISKS: Although the Company obtains insurance for workers’ compensation, automobile, product and general liability, property loss and medical claims, it has elected to retain a significant portion of expected losses through the use of deductibles. Accrued liabilities include estimates for both unpaid, reported claims and for claims incurred but not yet reported. Provisions for losses are recorded based upon estimates of the aggregate liability for claims incurred utilizing the Company’s prior experience and information provided by its third-party administrators and insurance carriers. DERIVATIVE FINANCIAL INSTRUMENTS: The Company utilizes derivative financial instruments (individually or in combinations) to manage market and financial risks related to interest rates, foreign currency and commodities. The Company seeks to use derivative contracts that qualify for hedge accounting treatment; however some instruments that economically manage currency risk may not qualify for hedge accounting treatment. It is the Company’s policy not to speculate inusing derivative instruments. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
Under hedge accounting, the Company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for entering into the hedge transaction. The process includes the linking of the derivative instruments that are designated as hedges of specific assets, liabilities, firm commitments or forecasted transactions. The Company also formally assesses both at inception and on a quarterly basis thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be highly effective, deferred gains or losses are recorded in the Consolidated Statements of Operations. Derivatives are recorded in the Consolidated Balance Sheets at fair value in “Other current” or “Sundry” assets or “Other current” or “Other long-term” liabilities. The fair value is based upon market quotes. On the date the contract is entered into, the Company designates the derivative as one of the following types of hedging instruments and accounts for it as follows: Cash Flow Hedge—The hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability is designated as a cash flow hedge. The effective portion of the change in fair value of a cash flow hedge is recorded in accumulated other comprehensive income. When the hedged item impacts the income statement, the gain or loss included in other comprehensive income is reported on the same line of the Consolidated Statements of Operations as the hedged item to match the gain or loss on the derivative to the gain or loss on the hedged item. Any ineffective portion of the changes in the fair value of the cash flow hedge is reported in the Consolidated Statements of Operations on the same line as the hedged item. Fair Value Hedge—The hedge of a recognized asset or liability or an unrecognized firm commitment is designated a fair value hedge. For fair value hedges, both the effective and ineffective portions of the changes in fair value of the derivative, along with the gain or loss on the hedged item that is attributable to the hedged risk, are recorded in earnings and reported in the Consolidated Statements of Operations on the same line as the hedged item. Net Investment Hedge—The hedge of a net investment in a foreign operation is designated a net investment hedge. The effective portion of the change in the fair value of derivatives, based upon spot rates, used as a net investment hedge of a foreign operation is recorded in other comprehensive income on the Consolidated Statements of Changes in Shareholders’ Equity. Any ineffective portion of the change in the fair value of an instrument designated as a net investment hedge is recorded in the Consolidated Statements of Operations. FOREIGN CURRENCY TRANSLATION: The functional currency for most foreign operations is the local currency. The translation of foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for income and expense accounts using monthly average exchange rates. The cumulative effects of translating the functional currencies into the U.S. dollar are included in comprehensive income. RECLASSIFICATIONS: Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the 20072008 presentation: In the Consolidated Balance Sheets—certain current liabilities associated with held for sale items have been reclassified between “Accrued expenses” and “Other current liabilities.” In the Consolidated Statements of Operations and all related notes—Prior periods have been retrospectively adjusted to reflect the effectmovement of the Coated Fabrics unit, previously in the Residential Furnishing segment, to discontinued operations. (See Note B.) In the Consolidated Balance Sheets—“Non-current assets held for sale” previously included in “Sundry assets”, is now disclosed as a separate line item.
In the Consolidated Statements of Cash Flows—Activity from the divestiture of small businesses previously included in the “Other” line item within Operating Activities and Investing Activities is now included in “Net gain from sales of assets” and “Proceeds from sales of assets”, respectively.
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
In Notes D, E and O—Prior year segment information has been retrospectively adjusted to reflect discontinued operations and an organizational change that moved certain operations between two segments. The impact of this change is described in Notes D, E and O.
NEW ACCOUNTING STANDARDS: In September 2006,On January 1, 2008, the Company adopted the Financial Accounting Standards Board (FASB) issued SFASStatement of Financial Accounting Standards (SFAS) No. 158 (SFAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS 158Plans” provision which requires the Company to recognize the funded status of each of its defined benefit postretirement plans as an asset or liability on the balance sheet. This requirement was effective as of December 31, 2006, and is reflected in the accompanying financial statements. SFAS 158 will also require the Companyit to measure the funded status of its plans as of year end beginning with theits December 31, 2008 balance sheet. The Company currently usespreviously used September 30 as the measurement date for its most significant plans. The Company has chosen to perform a measurement that covers the 15-month period of October 1, 2007 through December 31, 2008. AUpon implementation, a proportionate allocation iswas made to cover the net benefit expense or income for the transition period and that amount will bethe Company recorded as an adjustmenta $.5 (net of tax) increase to beginning retained earnings on January 1, 2008. The Company has evaluatedpreviously adopted the effectprovisions of this standardstatement which were effective December 31, 2006 to recognize the funded status of its defined benefit plans in the balance sheet and doesto recognize as a component of other comprehensive income changes in funded status from year to year that are not believe it will have a material impact on the Company’s financial statements.otherwise reflected in income. In September 2006,As discussed in Note T, the FASB also issuedprovisions of SFAS No. 157 (SFAS 157), “Fair Value Measurements.”Measurements” were adopted on January 1, 2008 for financial assets and liabilities of the Company. SFAS 157 provides guidance for using fair value to measure assets and liabilities and requires additional disclosure about the use of fair value measures, the information used to measure fair value, and the effect fair value measurements have on earnings. The primary areas in which the Company utilizes fair value measures are valuing pension plan assets and liabilities, valuing hedge-related derivative financial instruments, allocating purchase price to the assets and liabilities of acquired companies, and evaluating long-term assets for potential impairment.disclosure. SFAS 157 does not require any new fair value measurements. SFAS 157 is also has an
effective for financial assets and liabilitiesdate of the Company beginning January 1, 2008. SFAS 157 is effective beginning January 1, 2009 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The Company has evaluated the effect of this standard and does not believe that it will have a material impact on the Company’s financial statements. In February 2007, the FASB issued SFAS No. 159 (SFAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other instruments at fair value, with the objective of improving financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. As the Company did not elect to fair value any of its financial instruments under the provisions of SFAS 159, isthe adoption of this statement, effective for the Company beginning January 1, 2008. The Company has evaluated the effect of this standard and determined that it will2008, did not have a materialan impact on the Company’s financial statements. In December 2007, the FASB issued SFAS No. 141 (R)141(R) (SFAS 141R), “Business Combinations,” which replaces SFAS 141. The new standard requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed. SFAS 141 (R)141R is effective on a prospective basis for all business combinations for which the acquisition date is on or after January 1, 2009, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141 (R)141R amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141 (R)141R would also apply the provisions of SFAS 141 (R). The141R. Because the adoption of SFAS 141 (R)141R will be applied prospectively, it is not expected to have a material impact on the Company’s financial statements. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
In December 2007, the FASB also issued SFAS No. 160 (SFAS 160), “Noncontrolling Interests in Consolidated Financial Statements,” which seeks to improve the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same way as equity in their consolidated financial statements. SFAS 160 is also effective for the Company beginning January 1, 2009, and its adoption is not expected to have a material impact on the Company’s financial statements. In March 2008, the FASB issued SFAS No. 161 (SFAS 161), “Disclosures about Derivative Instruments and Hedging Activities.” The new standard requires enhanced disclosures about derivative instruments and hedging activities and their effects on an entity’s financial position, financial performance, and cash flows. The statement requires disclosure of objectives and strategies for derivative instruments, disclosure of the fair values of derivative instruments and their gains and losses in a tabular format, disclosure of contingent derivative features that are credit-risk related, and requires cross-referencing within footnotes if the required disclosures are presented in more than one footnote. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Its adoption is not expected to have a material impact on the Company’s financial statements. In April 2008, FASB Staff Position (FSP) SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets” was issued. This FSP amends the factors that must be considered in developing renewal or extension assumptions used to determine the useful life over which to amortize the cost of a recognized intangible asset under SFAS No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” The FSP requires an entity to consider its own assumptions about renewal or extension of the term of the arrangement, consistent with its expected use of the asset, and is an attempt to improve consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141, “Business Combinations.” The FSP is effective for the Company beginning January 1, 2009, and the guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. The Company does not expect the adoption of FSP SFAS No. 142-3 to have a material effect on its consolidated financial statements. In May 2008, the FASB issued SFAS No. 162 (SFAS 162), “The Hierarchy of Generally Accepted Accounting Principles.” This statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. It was effective 60 days following the Securities and Exchange Commission’s approval on September 16, 2008, of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” This statement will not result in a change in the Company’s current practice. In October 2008, FSP SFAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” was issued. This FSP clarifies the application of FASB Statement No. 157, “Fair Value Measurements,” and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. This FSP was effective upon issuance. Its adoption did not have a material effect on the Company’s consolidated financial statements. In December 2008, FSP SFAS No. 132(R)-1, “Employers’ Disclosure about Postretirement Benefit Plan Assets” was issued. This FSP requires additional disclosure surrounding plan assets of defined benefit pension plans in the Company’s December 31, 2009 financial statements. Additional disclosures related to benefit plan assets include information about investment policies and strategies, the fair value of each major category of plan assets, and information that enables users of financial statements to assess the inputs and valuation techniques used to develop fair value measurements of plan assets. Its adoption is not expected to have a material impact on the Company’s financial statements. B—Discontinued Operations and Assets Held for Sale In MarchDuring 2007 the Company soldcompleted an extensive review of its Prime Foam Products unitbusiness portfolio and has reporteddetermined that it will exit certain of its business activities. This includes the divestiture of some operations, the pruning of some business and the closure of certain underperforming plants, referred to as discontinued operations in the Consolidated Statements of Operations. 2007 Strategic Plan. Details related to completed divestitures are discussed below.
Fourth quarter 2008 Fibers unit—The sale of this unit resulted in a pretax loss of $8.6 ($7.8 loss net of tax) that is reported within earnings from discontinued operations. This unit was previously reported in the Residential Furnishings segment. Third quarter 2008 Aluminum Products segment—This segment was sold for $300 in cash, a $25 subordinated note (book value of $14), and shares of preferred stock (no book value, with face value not to exceed $25, dependent upon future performance of the divested business). The sale of this business resulted in a pre-tax gain of $23.7$7.6 ($12.116.0 gain after taxes) that is reported within earnings from discontinued operations. Wood Products unit—The sale of this unit resulted in a pretax loss of $4.1 ($4.4 loss net of tax) that is reported within earnings from discontinued operations. This unit was previously part of the Residential Furnishings segment. Plastics unit—The sale of this unit resulted in a pretax loss of $9.4 ($6.7 loss net of tax) that is reported within earnings from discontinued operations. This unit was previously reported in the Commercial Fixturing & Components segment. The dealer portion of the Commercial Vehicle Products unit—The sale of this business resulted in a pretax gain of $.4 ($.3 gain after taxes) that is reported within earnings from discontinued operations. This business was previously reported in the Specialized Products segment. First quarter 2008 One automotive seating components operation—The sale of this business resulted in a pre-tax loss of $2.5 ($1.7 loss net of tax) that is reported within earnings from discontinued operations. This business was previously part of the Residential Furnishings Segment and produced foam primarily used for cushioning by upholstered furniture and bedding manufacturers.Specialized Products segment. In November 2007, after significant study, the Company determined that it will exit certain of its business activities. One metal store fixture operation—This includes the anticipated divestiture of some operations, the pruning of some business and the closure of certain underperforming plants.
As part of the 2007 Strategic Plan, the Company will manage its business units as a portfolio with different roles (Grow, Core, Fix or Divest) for each business unit based upon competitive advantages, strategic position and financial health. Those in the Grow category will provide avenues for profitable growth and investment in competitively advantaged positions. Those in the Core category are charged with enhancing productivity, maintaining or improving market share, and generating cash flow while using minimal amounts of capital. Business units in the Fix category will be given limited time in which to rapidly and significantly improve performance, while those in the Divest category will be actively marketed for sale or closed.
The largest portion of the exit activities is the anticipated divestiture of the Company’s Aluminum Products segment and all or a portion of six additional business units. The Aluminum Products segment and five of the business units areoperation was classified as held for sale andat December 31, 2007, but did not meet the requirements for discontinued operations. The results for this operation (including a pre-tax gain on sale of $1.5) are included in discontinued operations: two are in the Residential Furnishings segment (Fibers and Wood Products); two are in the Commercial Fixturing & Components segment (Storagesegment. The pre-tax gain is reported in “Other expense, net” on the Consolidated Statements of Operations.
First quarter 2007 Prime Foam Products and Plastics); and oneunit—The sale of this unit resulted in a pre-tax gain of $23.7 ($12.1 gain after taxes) that is in the Specialized Products segment (the dealer portionreported within earnings from discontinued operations. This business was previously part of Commercial Vehicle Products). A sixth business unit in the Residential Furnishings segment (Coated Fabrics) is also targeted for divestiture in 2008, but does not yet meet the criteria for eithersegment. The Company has two remaining businesses held for sale or discontinued operations. The(Coated Fabrics and Storage Products) and pre-tax proceeds generated from the divestitures are expected to recover the carrying value of the assets held for sale. At December 31, 2007, $481sale as presented in the following tables. Completion of net assets were classified as held for sale,these dispositions is expected in the near term, although market conditions may delay the timing of which $15 represented assets not associated with the 2007 Strategic Plan.these dispositions. The net assets held for sale canmay fluctuate due to changes in working capital until these businesses are divested.
In addition to these divestitures, the Company anticipates eliminating approximately 20% of the Store Fixture business unit’s least profitable revenue. This unit was placed in the Fix category and given a 12-month deadline in which to improve performance. Finally, several Grow and Core business units, though otherwise healthy, contain individual plants operating at unacceptable profit levels. The Company anticipates the closure or disposition of a number of these unprofitable facilities. The majority of these facilities have not met the requirements to be classified as held for sale or discontinued operations. Thus far, the Company has identified two operations that it plans to divest; one is an automotive seating components operation in the Specialized Products segment, the other is a Fixture & Display operation in the Commercial Fixturing & Components segment. Both of these operations are
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
classified as held for sale, but only the automotive seating components operation met the requirements for discontinued operations reporting at December 31, 2007.
The Company anticipates that the exit activities will be completed by the end of 2008.
Results from discontinued operations for the years ended December 31 were as follows: | | | | 2007
| | 2006
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| | External sales: | | | | | Residential Furnishings: | | | | | Prime Foam Products Unit | | $ | 44.4 | | | $ | 191.6 | | | $ | 143.4 | | | $ | — | | | $ | 44.4 | | | $ | 191.6 | | Wood Products Unit | | | 52.6 | | | | 54.3 | | | | 81.8 | | | | 42.3 | | | | 52.6 | | | | 54.3 | | Fibers Unit | | | 88.3 | | | | 97.4 | | | | 98.4 | | | | 77.6 | | | | 88.3 | | | | 97.4 | | Coated Fabrics Unit (1) | | | | 36.0 | | | | 56.4 | | | | 66.1 | | Commercial Fixturing & Components: | | | | | Plastics Unit | | | 44.7 | | | | 48.6 | | | | 48.8 | | | | 33.4 | | | | 44.7 | | | | 48.6 | | Storage Products Unit | | | 92.9 | | | | 104.0 | | | | 102.7 | | | | 79.5 | | | | 92.9 | | | | 104.0 | | Aluminum Products Segment | | | 493.8 | | | | 543.3 | | | | 515.9 | | | | 270.5 | | | | 493.8 | | | | 543.3 | | Specialized Products: | | | | | Dealer portion of the Commercial Vehicle Products Unit | | | 88.5 | | | | 98.6 | | | | 18.3 | | | | 45.4 | | | | 88.5 | | | | 98.6 | | An automotive seating components operation | | | 37.3 | | | | 34.6 | | | | 32.5 | | | | 3.9 | | | | 37.3 | | | | 34.6 | | | | |
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| External sales | | $ | 942.5 | | | $ | 1,172.4 | | | $ | 1,041.8 | | | $ | 588.6 | | | $ | 998.9 | | | $ | 1,238.5 | | | | |
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| Earnings (loss): | | | | | Residential Furnishings: | | | | | Prime Foam Products Unit | | $ | 25.4 | | | $ | 22.1 | | | $ | 8.1 | | | $ | (2.5 | ) | | $ | 25.4 | | | $ | 22.1 | | Wood Products Unit | | | (12.4 | ) | | | 15.0 | | | | (2.4 | ) | | | (1.9 | ) | | | (12.4 | ) | | | 15.0 | | Fibers Unit | | | 5.0 | | | | 8.0 | | | | 4.6 | | | Fibers Unit (2) | | | | (15.9 | ) | | | 5.0 | | | | 8.0 | | Coated Fabrics Unit (2) | | | | (7.0 | ) | | | (13.4 | ) | | | (1.2 | ) | Commercial Fixturing & Components: | | | | | Plastics Unit | | | 5.0 | | | | 4.3 | | | | 2.9 | | | | (4.2 | ) | | | 5.0 | | | | 4.3 | | Storage Products Unit | | | 5.7 | | | | 4.9 | | | | 2.2 | | | Storage Products Unit (2) | | | | (9.1 | ) | | | 5.7 | | | | 4.9 | | Aluminum Products Segment | | | (77.7 | ) | | | 46.8 | | | | 35.1 | | | | 24.7 | | | | (77.7 | ) | | | 46.8 | | Specialized Products: | | | | | Dealer portion of the Commercial Vehicle Products Unit | | | (25.0 | ) | | | .1 | | | | (1.5 | ) | | Dealer portion of the Commercial Vehicle Products Unit (3) | | | | (13.0 | ) | | | (25.0 | ) | | | .1 | | An automotive seating components operation | | | (15.1 | ) | | | (1.4 | ) | | | 2.4 | | | | (3.1 | ) | | | (15.1 | ) | | | (1.4 | ) | | | |
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| Earnings (loss) before interest and income taxes | | | (89.1 | ) | | | 99.8 | | | | 51.4 | | | | (32.0 | ) | | | (102.5 | ) | | | 98.6 | | Interest (expense) income | | | (2.3 | ) | | | .6 | | | | (.9 | ) | | | (1.0 | ) | | | (2.3 | ) | | | .6 | | Income tax benefit (expense) | | | 29.2 | | | | (35.7 | ) | | | (17.3 | ) | | | 14.5 | | | | 34.2 | | | | (35.0 | ) | | | |
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| Earnings (loss) from discontinued operations, net of tax | | $ | (62.2 | ) | | $ | 64.7 | | | $ | 33.2 | | | $ | (18.5 | ) | | $ | (70.6 | ) | | $ | 64.2 | | | | |
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| (1) | In the first quarter 2008, the Coated Fabrics unit, previously in the Residential Furnishings segment, met the criteria for held for sale and discontinued operations. All others met the criteria during 2007. |
| (2) | As a result of the deterioration in the economy and credit markets during the third quarter of 2008 and its impact on available credit for potential buyers, the carrying value of certain assets held for sale exceeded the fair value, and management concluded that pre-tax goodwill impairment charges of $25.6 were necessary for the Fibers ($11.0), Coated Fabrics ($4.1), and Storage Products ($10.5) units. |
| (3) | During 2008, a $5.6 pre-tax asset impairment charge was recorded for the dealer portion of Commercial Vehicle Products to reflect an updated estimate of fair value less cost to sell. |
The above amounts include the impact of asset impairment and restructuring charges discussed in Notes C and D.
Net assets held for sale by segment at December 31 were as follows: | | | | | | | | | | | | | 2007
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Assets
| Residential Furnishings | | $ | 69.3 | | $ | 6.8 | | $ | 62.5 | Commercial Fixturing & Components | | | 91.9 | | | 9.3 | | | 82.6 | Aluminum Products | | | 332.7 | | | 49.2 | | | 283.5 | Industrial Materials | | | 3.8 | | | — | | | 3.8 | Specialized Products | | | 56.8 | | | 8.1 | | | 48.7 | | | |
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| Net assets held for sale | | $ | 554.5 | | $ | 73.4 | | $ | 481.1 | | | |
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Leggett & Platt, Incorporated
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| Residential Furnishings | | $ | 14.2 | | $ | 3.1 | | $ | 11.1 | | $ | 69.3 | | $ | 6.8 | | $ | 62.5 | Commercial Fixturing & Components | | | 33.9 | | | 4.3 | | | 29.6 | | | 91.9 | | | 9.3 | | | 82.6 | Aluminum Products | | | 1.4 | | | — | | | 1.4 | | | 332.7 | | | 49.2 | | | 283.5 | Industrial Materials | | | 3.6 | | | — | | | 3.6 | | | 3.8 | | | — | | | 3.8 | Specialized Products | | | 8.1 | | | — | | | 8.1 | | | 56.8 | | | 8.1 | | | 48.7 | | | |
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| Net assets held for sale | | $ | 61.2 | | $ | 7.4 | | $ | 53.8 | | $ | 554.5 | | $ | 73.4 | | $ | 481.1 | | | |
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Notes to Consolidated Financial Statements—(Continued)These tables include $21.9 and $15.1 of property, plant and equipment held for sale at December 31, 2008 and 2007, respectively, primarily associated with the closings of various operations and prior year restructurings not associated with the 2007 Strategic Plan. These amounts also include land and buildings retained when the Company divested the Aluminum Products segment.
The major classes of assets and liabilities held for sale included in the Company’s Consolidated Balance Sheets were as follows: | | | | | | | 2007
| Receivables, net | | $ | 121.2 | Inventories | | | 147.9 | Prepaid expenses and other current assets | | | 15.9 | | | |
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| Total current assets held for sale | | | 285.0 | | | |
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| | | Property, plant and equipment, net | | | 226.8 | Goodwill, net | | | 33.6 | Patents and other intangible assets, net | | | 7.9 | Other assets | | | 1.2 | | | |
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| Total non-current assets held for sale | | | 269.5 | | | |
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| Total assets held for sale | | $ | 554.5 | | | |
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| Current maturities of long-term debt | | $ | .1 | Accounts payable | | | 59.3 | Accrued expenses | | | 11.8 | Other current liabilities | | | 1.2 | | | |
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| Total current liabilities held for sale | | | 72.4 | | | |
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| Long-term debt | | | .4 | Other long-term liabilities | | | .6 | | | |
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| Total long-term liabilities held for sale | | | 1.0 | | | |
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| Total liabilities held for sale | | $ | 73.4 | | | |
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The above table includes $15.1 of property, plant and equipment held for sale at December 31, 2007 not associated with the exit activities described earlier. At December 31, 2006 the Company had $19.1 of property, plant and equipment held for sale from the closings of various operations and prior year restructurings.
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| | 2007
| Receivables, net | | $ | 10.4 | | $ | 121.2 | Inventories | | | 20.4 | | | 147.9 | Prepaid expenses and other current assets | | | .2 | | | 15.9 | | | |
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| Total current assets held for sale | | | 31.0 | | | 285.0 | | | |
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| Property, plant and equipment, net | | | 27.0 | | | 226.8 | Goodwill, net | | | 3.0 | | | 33.6 | Patents and other intangible assets, net | | | .2 | | | 7.9 | Other assets | | | — | | | 1.2 | | | |
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| Total non-current assets held for sale | | | 30.2 | | | 269.5 | | | |
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| Total assets held for sale | | $ | 61.2 | | $ | 554.5 | | | |
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| Current maturities of long-term debt | | $ | — | | $ | .1 | Accounts payable | | | 4.6 | | | 59.3 | Accrued expenses | | | 2.8 | | | 11.8 | Other current liabilities | | | — | | | 1.2 | | | |
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| Total current liabilities held for sale | | | 7.4 | | | 72.4 | | | |
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| Long-term debt | | | — | | | .4 | Other long-term liabilities | | | — | | | .6 | | | |
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| Total long-term liabilities held for sale | | | — | | | 1.0 | | | |
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| Total liabilities held for sale | | $ | 7.4 | | $ | 73.4 | | | |
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C—Impairment Charges As discussed in Note B, in November 2007, the Company determinedGoodwill
SFAS 142 requires that it will exit certain of its business activities, and adoptedgoodwill be tested for impairment at least once a new strategic plan.year or as triggering events may occur. The Company determined finalization and approval of the activities associated with the strategic plan was considered a triggering event under the requirements of SFAS 142 “Goodwill and Other Intangible Assets” and SFAS 144 “Accounting for Impairment or Disposal of Long-Lived Assets” which required the Company to perform certain impairment reviews in the fourth quarter of 2007. In June 2007, the Company performedperforms its annual goodwill impairment review in June of each year as discussed in Note A.
Fair value of reporting units is determined using a combination of two valuation methods: a market approach and an income approach with each method given equal weight in determining the fair value assigned to each reporting unit. Absent an indication of fair value from a potential buyer or similar specific transaction, the Company believes that the use of these two methods provides a reasonable estimate of a reporting unit’s fair value. Assumptions common to both methods are operating plans and economic projections, which are used to project future revenues, earnings, and after tax cash flows for each reporting unit. These assumptions are applied consistently for both methods. The market approach estimates fair value by first determining price to earnings ratios for comparable publicly-traded companies with similar characteristics of the reporting unit. The price to earnings ratio for comparable companies is based upon current enterprise value compared to projected earnings for the next two years. The enterprise value is based upon current market capitalization and includes a 25% control premium. Projected earnings are based upon market analyst’s projections. The earnings ratios are applied to the projected earnings of the comparable reporting unit to estimate fair value. Management believes this approach is appropriate because it provides a fair value estimate using multiples from entities with operations and economic characteristics comparable to the Company’s reporting units. The income approach is based on projected future (debt-free) cash flow that is discounted to present value using factors that consider the timing and risk of future cash flows. Management believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. Discounted cash flow projections are based on 10-year financial forecasts developed from operating plans and economic projections noted above, growth rates, estimates of future expected changes in operating margins, terminal value growth rates, future capital expenditures and changes in working capital requirements. 2007 Goodwill Impairment Reviews During the annual review performed in June 2007, it was determined that no impairments were indicated for any of the reporting units. Subsequently,units because forecasted results indicated that operations would generate sufficient cash flows to recover their carrying amounts. Later in the year, as part of a majorthe strategic review (discussed in Note B), which was broader in scope, more strategic in nature, and more long-term oriented than any previous reviews, the Company assessed the structure and financial attractiveness of its various markets, and the Company’s competitive position in those markets. Based upon new facts and perspectives obtained from this review, the Company reduced the operating margin and growth rate expectations for several of its business units. In addition,The Company determined the finalization and approval of the activities associated with the strategic plan was considered a triggering event under the requirements of SFAS 142 and step one of the impairment test indicated potential goodwill impairment in the Fixture & Display and Aluminum Products reporting units. The Company performed the second step of the goodwill impairment test for these reporting units to determine the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying value of the goodwill. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. As a result of this process, the Company recorded goodwill impairment charges in the fourth quarter of 2007 related to the Fixture & Display and Aluminum Products reporting units of $142.6 and $83.3, respectively. The significant assumptions included a 10-year compound annual growth rate of 5% and 4% related to Fixture & Display and Aluminum Products, respectively. Terminal values for alleach reporting unitsunit were loweredcalculated using a long-term growth rate of 3%. Future cash flows were discounted to present value using a discount rate of 12% for Fixture & Display and 13% for Aluminum Products. 2008 Goodwill Impairment Reviews The annual goodwill impairment review performed in June 2008, indicated no goodwill impairments. The deterioration in the economic and financial climate in the fourth quarter of 2008 and the associated revision to earnings as a result of the significant decreaselower demand was considered a triggering event under SFAS 142. An interim goodwill impairment analysis was performed in the Company’s overall marketfourth quarter 2008 that confirmed fair values exceeded carrying value since June 2007. Therefor all reporting units. Future cash flow assumptions were no impairments recorded priorreduced to reflect lowered sales and production levels for 2009 and 2010, returning to historical levels thereafter. Other significant assumptions included (i) 10-year compound annual growth rates ranging from 2%-6%; (ii) terminal values for each reporting unit using a long-term growth rate of 3%; and (iii) discount rates ranging from 11-12%. Goodwill associated with reporting units whose fair values exceeded the strategic review process becausecarrying value by 10-20% was $254.7; $205.5 of goodwill was associated with reporting units that had 20-30% excess fair value; and $415.4 of goodwill was associated with reporting units that had fair values in excess of the carrying values by greater than 30%. If actual results differ from estimates used in these calculations, the Company believed that operations would generate sufficient cash flows to recover their carrying amounts. Leggett & Platt, Incorporatedcould incur future impairment charges.
NotesThe Store Fixtures business unit experienced operational performance shortfalls in recent years and significant restructuring activities in the fourth quarter 2008 following the decision to Consolidated Financial Statements—(Continued)
focus on metal fixtures. The Store Fixtures business unit is included in the Fixture & Display reporting unit for goodwill impairment testing purposes. As a result of the interim goodwill impairment review performed in the fourth quarter 2008, no impairment charges were indicated for the Fixture & Display reporting unit. The significant assumptions included a 10-year compound annual growth rate of 6%, terminal values using a long-term growth rate of 3%, and a discount rate of 12%. Future cash flows are expected to increase as a result of narrowing the scope of the unit primarily to the metals part of the fixture industry. The recoverability of long-lived assets was also reviewed for potential impairment, with no impairments indicated. The Fixture & Display reporting unit had $106 and $118 of goodwill at December 31, 2008 and 2007, respectively. Of the $64 and $76 of other long-lived assets in the requirementFixture & Display reporting unit, $62 and $73 were associated with the Store Fixtures business unit at December 31, 2008 and 2007, respectively. Businesses Held for Sale In November 2007, the Company determined that it would exit certain of its business activities, and adopted a new strategic plan which required the Company to recordperform certain impairment reviews in the businesses heldfourth quarter 2007 under the requirements of SFAS 144 “Accounting for sale atImpairment or Disposal of Long-Lived Assets.” As a result of this review, goodwill and asset impairments were recorded in 2007 relating to held-for-sale locations as summarized in the table below. In 2008, asset impairment charges were recorded as updated estimates of fair value less costcosts to sell became more certain. Pre-tax goodwill impairment charges of $25.6 were necessary and recorded for the Fibers ($11.0), Coated Fabrics ($4.1), and Storage Products ($10.5) units during the third quarter 2008 as a result of the deterioration in the economy and credit markets and the impact on available credit for potential buyers. Other Long-Lived Assets As discussed in Note A, other long-lived assets are tested for recoverability at year end and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. As a result of the deterioration in the economic and financial climate in the fourth quarter of 2008, the Company incurredperformed an impairment review and determined that intangible assets associated with supply agreements in Latin America were impaired due to a numbersignificant reduction in the expected future cash flows associated with these agreements, resulting in an impairment of impairment charges. $9.5 in the Residential Furnishings segment. The Company also recorded other various impairments as presented in the table below which did not individually result in a material charge to earnings for the periods presented. The pre-tax impact of theseimpairment charges on continuing and discontinued operations is summarized in the following table. Asset impairments associated with continuing operations are reported on the Statements of Operations in “Impairment of goodwill” and “Other expense, net.” Charges associated with discontinued operations are reported on the Statements of Operations in “Earnings (loss) from discontinued operations, net of tax.” | | | | 2007
| | 2006
| | 2005
| | 2008
| | 2007
| | 2006
| | | | Goodwill
Impairment
| | Other Long-
Lived Asset
Impairments
| | Total
Impairments
| | Other Long-
Lived Asset
Impairments
| | Other Long-
Lived Asset
Impairments
| | Goodwill
Impairment
| | Other Long-
Lived Asset
Impairments
| | Total
Impairments
| | Goodwill
Impairment
| | Other Long-
Lived Asset
Impairments
| | Total
Impairments
| | Other Long-
Lived Asset
Impairments
| Impairment charges recognized in continuing operations | | | Residential Furnishings: | | | Coated Fabrics Unit | | $ | — | | $ | 5.2 | | $ | 5.2 | | $ | — | | $ | — | | Other units | | | — | | | 1.8 | | | 1.8 | | | 3.5 | | | 12.0 | | Commercial Fixturing & Components: | | | Residential Furnishings | | | $ | — | | $ | 10.0 | | $ | 10.0 | | $ | — | | $ | 1.8 | | $ | 1.8 | | $ | 3.0 | Commercial Fixturing & Components | | | Fixture & Display Group | | | 142.6 | | | 3.4 | | | 146.0 | | | .2 | | | 1.9 | | | — | | | 2.2 | | | 2.2 | | | 142.6 | | | 3.4 | | | 146.0 | | | — | Industrial Materials | | | — | | | .9 | | | .9 | | | — | | | 3.3 | | | — | | | .6 | | | .6 | | | — | | | .9 | | | .9 | | | — | Specialized Products | | | — | | | — | | | — | | | .5 | | | 1.1 | | | — | | | .5 | | | .5 | | | — | | | — | | | — | | | .5 | | | |
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| Total impairment charges recognized in continuing operations | | $ | 142.6 | | $ | 11.3 | | $ | 153.9 | | $ | 4.2 | | $ | 18.3 | | $ | — | | $ | 13.3 | | $ | 13.3 | | $ | 142.6 | | $ | 6.1 | | $ | 148.7 | | $ | 3.5 | | | |
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| Impairment charges recognized in discontinued operations | | | Residential Furnishings: | | | Wood Products Unit | | $ | 2.9 | | $ | 10.1 | | $ | 13.0 | | $ | .1 | | $ | 4.6 | | $ | — | | $ | — | | $ | — | | $ | 2.9 | | $ | 10.1 | | $ | 13.0 | | $ | .1 | Prime Foam Products Unit | | | — | | | — | | | — | | | — | | | .3 | | Coated Fabrics Unit | | | | 4.1 | | | — | | | 4.1 | | | — | | | 5.2 | | | 5.2 | | | .5 | Fibers Unit | | | | 11.0 | | | — | | | 11.0 | | | — | | | — | | | — | | | — | Commercial Fixturing & Components | | | Storage Products Unit | | | | 10.5 | | | .3 | | | 10.8 | | | — | | | — | | | — | | | .2 | Aluminum Products Segment | | | 83.3 | | | 6.1 | | | 89.4 | | | — | | | 1.1 | | | — | | | — | | | — | | | 83.3 | | | 6.1 | | | 89.4 | | | — | Specialized Products: | | | Specialized Products | | | Dealer portion of the Commercial Vehicle Products Unit | | | 10.3 | | | 10.0 | | | 20.3 | | | — | | | — | | | — | | | 5.6 | | | 5.6 | | | 10.3 | | | 10.0 | | | 20.3 | | | — | An automotive seating components operation | | | 3.9 | | | 6.6 | | | 10.5 | | | — | | | — | | | — | | | — | | | — | | | 3.9 | | | 6.6 | | | 10.5 | | | — | | | |
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| Total impairment charges recognized in discontinued operations | | $ | 100.4 | | $ | 32.8 | | $ | 133.2 | | $ | .1 | | $ | 6.0 | | $ | 25.6 | | $ | 5.9 | | $ | 31.5 | | $ | 100.4 | | $ | 38.0 | | $ | 138.4 | | $ | .8 | | | |
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| Total impairment charges | | $ | 243.0 | | $ | 44.1 | | $ | 287.1 | | $ | 4.3 | | $ | 24.3 | | $ | 25.6 | | $ | 19.2 | | $ | 44.8 | | $ | 243.0 | | $ | 44.1 | | $ | 287.1 | | $ | 4.3 | | | |
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Other long-lived asset impairments are primarily related to intangibles in 2008 and to property, plant and equipment.equipment in 2007. Of the total impairment charges for the yearyears ended December 31, 2008 and 2007, $32.3 and $276.7, respectively, were associated with the 2007 Strategic Plan. The impairment charges in 2006 and 2005 were incurred primarily in conjunction with the 2005 Closure and Consolidation Initiative. D—Restructuring The Company has implemented various cost reduction initiatives in 2008, 2007 2006 and 20052006 to improve its operating cost structures. These cost initiatives have, among other actions, included workforce reductions and the closure or consolidation of certain operations. Except for the “2007 Strategic Plan” and “2005 Closure and Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
Consolidation Initiative” described below, none of these initiatives have individually resulted in a material charge to earnings for any of the periods presented. The details regarding all of the Company’s nettotal restructuring-related costs for the periods presented are provided below.
Total restructuring and other special charges for each of the three years ended December 31 were comprised of:
| | | | 2007
| | 2006
| | 2005
| | | Year ended December 31
| | | | | | 2008
| | 2007
| | 2006
| | Continuing Operations | | | | Charged to other expense, net: | | | | Severance and other restructuring costs | | | $ | 17.9 | | | $ | 14.2 | | | $ | 13.5 | | (Gain) from sale of assets | | | | (10.4 | ) | | | (8.9 | ) | | | (7.3 | ) | | | | |
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| | | | | | 7.5 | | | | 5.3 | | | | 6.2 | | | | | |
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| Charged to cost of goods sold: | | | | Inventory obsolescence and other | | | | 11.8 | | | | 4.5 | | | | (.5 | ) | | | | |
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| | | | | | 11.8 | | | | 4.5 | | | | (.5 | ) | | | | |
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| Discontinued Operations | | | | Severance and other restructuring costs | | $ | 15.5 | | | $ | 15.5 | | | $ | 20.0 | | | | 3.0 | | | | 1.3 | | | | 2.0 | | Inventory obsolescence and other | | | 11.1 | | | | (.2 | ) | | | 14.1 | | | | — | | | | 6.6 | | | | .3 | | (Gain) from sale of assets | | | (8.9 | ) | | | (7.6 | ) | | | (3.5 | ) | | Loss (gain) from sale of assets | | | | 16.5 | | | | — | | | | (.3 | ) | | | | |
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| | | | | | 19.5 | | | | 7.9 | | | | 2.0 | | | | |
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| Total restructuring and other special charges | | $ | 17.7 | | | $ | 7.7 | | | $ | 30.6 | | | $ | 38.8 | | | $ | 17.7 | | | $ | 7.7 | | | | |
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Total restructuring and other special charges associated with discontinued operations are reported on the Statements of Operations in “Earnings (loss) from discontinued operations” and totaled $5.2 in 2007; $1.2 in 2006; and $3.8 in 2005.operations, net of tax.” 2007 Strategic Plan As discussed in Note B, in November 2007, the Company adopted a new strategic plan which includes the exit of certain businesses. The Company anticipates that theThese exit activities will bewere substantially complete by the end of 2008. The following table contains information, by segment, regarding the amount of each major type of restructuring-related cost incurred in connection with the exit activities. | | | | Restructuring
Charges
| | Inventory
Obsolescence
and Other
| | Total
Amount
Incurred in
2007
| | Restructuring
Charges
| | Inventory
Obsolescence
and Other
| | (Gain)/Loss
on Sale of
Assets
| | Total
Amount
Incurred in
2008
| | Total
Amount
Incurred in
2007
| | Total
Amount
Incurred
To Date
| | Continuing Operations: | | | | | | | | Continuing Operations | | | | | | | | | | Residential Furnishings | | $ | — | | $ | 2.3 | | $ | 2.3 | | $ | .5 | | $ | — | | $ | — | | | $ | .5 | | | $ | — | | $ | .5 | | Commercial Fixturing & Components | | | 2.8 | | | 1.7 | | | 4.5 | | | 2.6 | | | 1.9 | | | (2.6 | ) | | | 1.9 | | | | 4.5 | | | 6.4 | | | | |
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| Total Continuing Operations (1) | | | 2.8 | | | 4.0 | | | 6.8 | | | 3.1 | | | 1.9 | | | (2.6 | ) | | | 2.4 | | | | 4.5 | | | 6.9 | | | Discontinued Operations: | | | | | | | | Discontinued Operations | | | | | | | | | | Residential Furnishings | | | — | | | 3.4 | | | 3.4 | | | — | | | — | | | 12.7 | | | | 12.7 | | | | 5.7 | | | 18.4 | | Commercial Fixturing & Components | | | | — | | | — | | | 9.4 | | | | 9.4 | | | | — | | | 9.4 | | Aluminum Segment | | | | — | | | — | | | (7.6 | ) | | | (7.6 | ) | | | — | | | (7.6 | ) | Specialized Products | | | .5 | | | — | | | .5 | | | 1.0 | | | — | | | 2.0 | | | | 3.0 | | | | .5 | | | 3.5 | | | | |
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| Total Discontinued Operations (2) | | | .5 | | | 3.4 | | | 3.9 | | | 1.0 | | | — | | | 16.5 | | | | 17.5 | | | | 6.2 | | | 23.7 | | | | |
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| Total (3) | | $ | 3.3 | | $ | 7.4 | | $ | 10.7 | | $ | 4.1 | | $ | 1.9 | | $ | 13.9 | | | $ | 19.9 | | | $ | 10.7 | | $ | 30.6 | | | | |
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| (1) | Restructuring charges associated with continuing operations are reported on the Statements of Operations in “Other expense, net.” Inventory obsolescence associated with continuing operations are reported in “Cost of Goods Sold.goods sold.” Restructuring2008 restructuring charges of $2.8$3.1 are comprised of $1.0 employee termination cost, $.3 contract termination costs, and $1.8 other restructuring costs. 2007 restructuring charges of $4.5 are comprised of $.8 employee termination costs, and $2.0 contract termination costs.costs and $1.7 of inventory obsolescence. |
| (2) | Charges associated with discontinued operations are reported on the Statements of Operations in “Earnings (loss) from discontinued operations.operations, net of tax.” Restructuring2008 restructuring charges of $.5$1.0 are comprised of $.1$.6 employee termination costs and $.4 other exit costs, primarily plant closure and asset relocation. 2007 restructuring charges of $6.2 are comprised of $.1 employee termination costs, $.4 of other exit costs and $5.7 of inventory obsolescence. |
| (3) | The restructuringCash charges oftotaled $4.1 and $3.3 were cash charges.for the years ended December 31, 2008 and 2007, respectively. |
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
The accrued liability associated with the 2007 Strategic Plan consisted of the following: | | | | 2007
Charges
| | Payments
| | Balance at
December 31,
2007
| | Balance at
December 31,
2007
| | 2008
Charges
| | Payments
| | Balance at
December 31,
2008
| Termination benefits | | $ | .9 | | $ | .1 | | $ | .8 | | $ | .8 | | $ | 1.6 | | $ | 2.2 | | $ | .2 | Contract termination costs | | | 2.0 | | | — | | | 2.0 | | | 2.0 | | | .4 | | | 2.4 | | | — | Other restructuring costs | | | .4 | | | .4 | | | — | | | — | | | 2.1 | | | 1.8 | | | .3 | | | |
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| | | | $ | 3.3 | | $ | .5 | | $ | 2.8 | | $ | 2.8 | | $ | 4.1 | | $ | 6.4 | | $ | .5 | | | |
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2005 Closure and Consolidation Initiative
In September 2005, the Company launched a significant broad-based restructuring initiative (the 2005 Closure and Consolidation Initiative) to reduce excess capacity and improve performance in a number of its businesses. As a result, management identified 36 operations to be closed, consolidated or sold. At December 31, 2007, the 2005 Closure and Consolidation Initiative activities are essentially complete.
The following table contains, by each major type of cost associated with the 2005 Closure and Consolidation Initiative, the total amount of costs incurred in each of the three years presented and the cumulative amount incurred to date:
| | | | | | | | | | | | | | | | | | | Total Amount
Incurred
To Date
| | | Total Amount
Incurred in
2007
| | | Total Amount
Incurred in
2006
| | | Total Amount
Incurred in
2005
| Type of charge: | | | | | | | | | | | | | | | | Employee termination costs | | $ | 12.4 | | | $ | — | | | $ | 4.0 | | | $ | 8.4 | Contract termination costs | | | 2.4 | | | | 1.3 | | | | .3 | | | | .8 | Other exit costs, primarily plant closure and asset relocation | | | 7.2 | | | | .3 | | | | 4.2 | | | | 2.7 | | | |
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| Total restructuring costs (1) | | | 22.0 | | | | 1.6 | | | | 8.5 | | | | 11.9 | Inventory obsolescence and other (2) | | | 12.0 | | | | .2 | | | | (.6 | ) | | | 12.4 | (Gain) from sale of assets | | | (14.1 | ) | | | (6.7 | ) | | | (7.4 | ) | | | — | | | |
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| Total costs | | $ | 19.9 | | | $ | (4.9 | ) | | $ | .5 | | | $ | 24.3 | | | |
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(1) | Restructuring costs associated with the 2005 Closure and Consolidation Initiative are reported on the Statements of Operations in “Other expense, net,” except for $.4, $.7 and $.8 which are included in discontinued operations in 2007, 2006 and 2005, respectively. |
(2) | Inventory obsolescence and other charges for the 2005 Closure and Consolidation Initiative are reported in “Cost of Goods Sold,” except for $0, $.3 and $.9 included in discontinued operations in 2007, 2006 and 2005, respectively. In 2006, $3.6 of inventory obsolescence reserves originally established in 2005 were reversed based on subsequent sales. All of this obsolescence reserve reversal was in the Specialized Products segment. |
Other than the inventory obsolescence, the costs associated with the 2005 Closure and Consolidation Initiative primarily represent cash charges.
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
The following table contains information, by segment, regarding the total amount of costs incurred in connection with the 2005 Closure and Consolidation Initiative and the amount incurred in each of the three years presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts Incurred in 2007
| | | | | | | Total
Amount
Incurred in
2005
| | Total
Amount
Incurred in
2006
| | | Restructuring
Charges
| | Inventory
Obsolescence
and Other
| | Gain on
Sale of
Assets
| | | Total
Amount
Incurred in
2007
| | | Total
Amount
Incurred To
Date
| Residential Furnishings | | $ | 3.1 | | $ | (.8 | ) | | $ | — | | $ | — | | $ | (.1 | ) | | $ | (.1 | ) | | $ | 2.2 | Commercial Fixturing & Components | | | 12.7 | | | (.8 | ) | | | 1.0 | | | .2 | | | (6.7 | ) | | | (5.5 | ) | | | 6.4 | Industrial Materials | | | .9 | | | .4 | | | | .2 | | | — | | | .1 | | | | .3 | | | | 1.6 | Specialized Products | | | 5.9 | | | .7 | | | | — | | | — | | | — | | | | — | | | | 6.6 | Discontinued Operations | | | 1.7 | | | 1.0 | | | | .4 | | | — | | | — | | | | .4 | | | | 3.1 | | | |
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| Total | | $ | 24.3 | | $ | .5 | | | $ | 1.6 | | $ | .2 | | $ | (6.7 | ) | | $ | (4.9 | ) | | $ | 19.9 | | | |
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The accrued liability associated with the 2005 Closure and Consolidation Initiative consisted of the following:
| | | | | | | | | | | | | | | | | | | | Balance at
December 31,
2006
| | Additional
Charges
| | Payments
| | | Adjustments
| | Balance at
December 31,
2007
| Termination benefits | | $ | 1.1 | | $ | — | | $ | (1.1 | ) | | $ | — | | $ | — | Contract termination costs | | | .1 | | | 1.3 | | | (.7 | ) | | | — | | | .7 | Other restructuring costs | | | .5 | | | .3 | | | (1.0 | ) | | | .2 | | | — | | | |
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| | | | $ | 1.7 | | $ | 1.6 | | $ | (2.8 | ) | | $ | .2 | | $ | .7 | | | |
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Other Initiatives Apart from the 2007 Strategic Plan, and the 2005 Closure and Consolidation Initiative, the Company has implemented various cost reduction initiatives over the last three years to improve its operating cost structures. None of these actions has individually resulted in a material charge to earnings. Total costs associated with these other initiatives have had the following impact on the Company’s financial statements: | | | | Year ended December 31
| | | Year ended December 31
| | | | | 2007
| | 2006
| | 2005
| | | 2008
| | 2007
| | 2006
| | Continuing Operations | | | | Charged to other expense, net: | | | | | Severance and other restructuring costs | | $ | 10.3 | | | $ | 7.0 | | | $ | 6.0 | | | (Gain) from sale of assets | | | (2.2 | ) | | | (.2 | ) | | | (3.5 | ) | | Severance and other restructuring costs (1) | | | $ | 14.8 | | | $ | 11.4 | | | $ | 13.5 | | (Gain) from sale of assets (2) | | | | (7.8 | ) | | | (8.9 | ) | | | (7.3 | ) | | | |
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| | | | | 8.1 | | | | 6.8 | | | | 2.5 | | | | 7.0 | | | | 2.5 | | | | 6.2 | | | | |
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| Charged to cost of goods sold: | | | | | Severance and other restructuring costs | | | — | | | | — | | | | — | | | Inventory obsolescence and other | | | 2.9 | | | | .2 | | | | 1.7 | | | Inventory obsolescence and other (3) | | | | 9.9 | | | | 2.8 | | | | (.5 | ) | | | |
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| | | | | 2.9 | | | | .2 | | | | 1.7 | | | | 9.9 | | | | 2.8 | | | | (.5 | ) | | | |
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| Included in discontinued operations: | | | | Discontinued Operations | | | | Severance and other restructuring costs | | | .3 | | | | — | | | | 2.1 | | | | 2.0 | | | | .8 | | | | 2.0 | | Inventory obsolescence and other | | | .6 | | | | .2 | | | | — | | | | — | | | | .9 | | | | .3 | | (Gain) from sale of assets | | | | — | | | | — | | | | (.3 | ) | | | |
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| | | | | .9 | | | | .2 | | | | 2.1 | | | | 2.0 | | | | 1.7 | | | | 2.0 | | | | |
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| Total of Other Initiatives | | $ | 11.9 | | | $ | 7.2 | | | $ | 6.3 | | | $ | 18.9 | | | $ | 7.0 | | | $ | 7.7 | | | | |
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| Restructuring liabilities at year-end | | $ | 4.5 | | | $ | 1.6 | | | $ | 2.1 | | | | | |
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For the years ended 2008, 2007, and 2006, respectively, restructuring and other special charges (income) associated with continuing operations by segment were: | (1) | Residential Furnishings—$11.8, $5.7, $8.0; Commercial Fixturing & Components—$2.4, $5.3, $1.9; Industrial Materials—$.1, $.4, $1.4; Specialized Products—$.5, $0, $2.2. |
| (2) | Residential Furnishings – ($8.1), $.9, ($4.2); Commercial Fixturing & Components—$0, ($8.8), ($2.1); Industrial Materials—$0, ($1.0), ($1.0); Specialized Products—$.3, $0, $0. |
| (3) | Residential Furnishings—$.7, $.5, $.9; Commercial Fixturing & Components—$4.5, $1.2, $.1; Industrial Materials—$.3, $0, $0; Specialized Products—$4.4, $1.1, ($1.5). |
Leggett & Platt, IncorporatedThe accrued liability associated with Other Initiatives consisted of the following:
Notes to Consolidated Financial Statements—(Continued) | | | | | | | | | | | | | | | | Balance at
December 31,
2007
| | 2008
Charges
| | Payments
| | Balance at
December 31,
2008
| Termination benefits | | $ | .7 | | $ | 8.0 | | $ | 6.6 | | $ | 2.1 | Contract termination costs | | | 4.0 | | | 1.7 | | | 2.6 | | | 3.1 | Other restructuring costs | | | .5 | | | 7.1 | | | 5.8 | | | 1.8 | | | |
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| | | | $ | 5.2 | | $ | 16.8 | | $ | 15.0 | | $ | 7.0 | | | |
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E—Goodwill and Other Intangible Assets The changes in the carrying amountamounts of goodwill are as follows: | | | | Residential
Furnishings
| | Commercial
Fixturing &
Components
| | Aluminum
Products
| | Industrial
Materials
| | Specialized
Products
| | Total
| | | Residential
Furnishings
| | Commercial
Fixturing &
Components
| | Aluminum
Products
| | Industrial
Materials
| | Specialized
Products
| | Total
| | Balance as of January 1, 2006* | | $ | 373.3 | | | $ | 340.9 | | | $ | 83.3 | | | $ | 42.8 | | | $ | 262.2 | | | $ | 1,102.5 | | | Additions for current year acquisitions | | | 38.0 | | | | — | | | | — | | | | — | | | | .4 | | | | 38.4 | | | Adjustments to and additional consideration for prior year acquisitions | | | .3 | | | | (1.6 | ) | | | — | | | | — | | | | (4.9 | ) | | | (6.2 | ) | | Goodwill written off related to sale of facilities | | | (1.0 | ) | | | — | | | | — | | | | (.2 | ) | | | (.2 | ) | | | (1.4 | ) | | Foreign currency translation adjustment/other | | | 6.5 | | | | .8 | | | | — | | | | .4 | | | | 8.3 | | | | 16.0 | | | | | |
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| | Balance as of December 31, 2006 | | | 417.1 | | | | 340.1 | | | | 83.3 | | | | 43.0 | | | | 265.8 | | | | 1,149.3 | | | Balance as of January 1, 2007 | | | $ | 417.1 | | | $ | 340.1 | | | $ | 83.3 | | | $ | 43.0 | | | $ | 265.8 | | | $ | 1,149.3 | | Additions for current year acquisitions | | | — | | | | 2.3 | | | | — | | | | 26.0 | | | | 9.2 | | | | 37.5 | | | | — | | | | 2.3 | | | | — | | | | 26.0 | | | | 9.2 | | | | 37.5 | | Adjustments to and additional consideration for prior year acquisitions | | | 1.4 | | | | — | | | | — | | | | — | | | | — | | | | 1.4 | | | | 1.4 | | | | — | | | | — | | | | — | | | | — | | | | 1.4 | | Impairment charge | | | (2.9 | ) | | | (142.6 | ) | | | (83.3 | ) | | | — | | | | (14.2 | ) | | | (243.0 | ) | | | — | | | | (142.6 | ) | | | — | | | | — | | | | — | | | | (142.6 | ) | Reclass to non-current assets held for sale | | | (10.3 | ) | | | (23.3 | ) | | | — | | | | — | | | | — | | | | (33.6 | ) | | | (13.2 | ) | | | (23.3 | ) | | | (83.3 | ) | | | — | | | | (14.2 | ) | | | (134.0 | ) | Goodwill written off related to sale of facilities | | | (17.2 | ) | | | — | | | | — | | | | — | | | | — | | | | (17.2 | ) | | Goodwill written off related to sale of business | | | | (17.2 | ) | | | — | | | | — | | | | — | | | | — | | | | (17.2 | ) | Foreign currency translation adjustment/other | | | 13.3 | | | | 9.3 | | | | — | | | | 0.2 | | | | 14.1 | | | | 36.9 | | | | 13.3 | | | | 9.3 | | | | — | | | | .2 | | | | 14.1 | | | | 36.9 | | | | |
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| Balance as of December 31, 2007 | | $ | 401.4 | | | $ | 185.8 | | | $ | — | | | $ | 69.2 | | | $ | 274.9 | | | $ | 931.3 | | | | 401.4 | | | | 185.8 | | | | — | | | | 69.2 | | | | 274.9 | | | | 931.3 | | Additions for current year acquisitions | | | | .4 | | | | .5 | | | | — | | | | — | | | | — | | | | .9 | | Adjustments to and additional consideration for prior year acquisitions | | | | .5 | | | | 8.9 | | | | — | | | | — | | | | .1 | | | | 9.5 | | Reclass to non-current assets held for sale | | | | (6.5 | ) | | | — | | | | — | | | | — | | | | — | | | | (6.5 | ) | Goodwill written off related to sale of business | | | | (3.0 | ) | | | — | | | | — | | | | — | | | | — | | | | (3.0 | ) | Foreign currency translation adjustment/other | | | | (21.9 | ) | | | (12.6 | ) | | | — | | | | (1.0 | ) | | | (21.1 | ) | | | (56.6 | ) | | | |
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| Balance as of December 31, 2008 | | | $ | 370.9 | | | $ | 182.6 | | | $ | — | | | $ | 68.2 | | | $ | 253.9 | | | $ | 875.6 | | | | | |
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* | The January 1, 2006 balance was retrospectively adjusted for an organizational change effective April 1, 2007, that moved $12.6 from Commercial Fixturing & Components to Industrial Materials. |
In 2008 and 2007, the Company recorded total goodwill impairment charges of $243.0 related to the Bedding, Fixtures & Display, Aluminum, Automotive, and Commercial Vehicle Products reporting units as outlined in Note C. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
Intangible asset additionsassets purchased during 2008 and adjustments during 2007 and 2006 included in “Other intangibles” on the Consolidated Balance Sheets are as follows: | | | | Year ended December 31
| | Year ended December 31
| | | | 2007
| | 2006
| | 2008
| | 2007
| | | | Gross
Carrying
Amount
| | Weighted
Average
Amortization
Period in Years
| | Gross
Carrying
Amount
| | Weighted
Average
Amortization
Period in Years
| | Gross
Carrying
Amount
| | Weighted
Average
Amortization
Period in Years
| | Gross
Carrying
Amount
| | Weighted
Average
Amortization
Period in Years
| Non-compete agreements | | $ | 4.0 | | 5.0 | | $ | 3.5 | | 5.7 | | $ | 2.6 | | 10.0 | | $ | 4.0 | | 5.0 | Customer related intangibles | | | 63.7 | | 17.8 | | | 45.0 | | 14.7 | | | .7 | | 11.1 | | | 63.7 | | 17.8 | Patents and trademarks | | | 11.4 | | 10.5 | | | 6.1 | | 20.1 | | | 6.0 | | 15.8 | | | 11.4 | | 10.5 | Supply agreements, deferred financing and other costs | | | 5.3 | | 7.5 | | | 17.9 | | 9.0 | | | 5.0 | | 9.7 | | | 5.3 | | 7.5 | | | |
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| | | | $ | 84.4 | | 14.5 | | $ | 72.5 | | 13.4 | | $ | 14.3 | | 12.4 | | $ | 84.4 | | 14.5 | | | |
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Total additions and adjustments to intangibles above include $75.1$2.0 and $53.5,$73.1, related to business acquisitions in 20072008 and 2006,2007, respectively. The gross carrying amount and accumulated amortization by major amortized intangible asset class are as follows: | | | | Year ended December 31
| | Year ended December 31
| | | | 2007
| | 2006
| | 2008
| | 2007
| | | | Gross
Carrying
Amount
| | Accumulated
Amortization
| | Gross
Carrying
Amount
| | Accumulated
Amortization
| | Gross
Carrying
Amount
| | Accumulated
Amortization
| | Gross
Carrying
Amount
| | Accumulated
Amortization
| Non-compete agreements | | $ | 34.2 | | $ | 17.5 | | $ | 32.8 | | $ | 14.2 | | $ | 28.5 | | $ | 15.5 | | $ | 34.2 | | $ | 17.5 | Customer related intangibles | | | 162.3 | | | 18.5 | | | 112.4 | | | 11.6 | | | 159.9 | | | 29.6 | | | 162.3 | | | 18.5 | Patents and trademarks | | | 62.4 | | | 17.7 | | | 53.5 | | | 15.2 | | | 58.5 | | | 20.1 | | | 62.4 | | | 17.7 | Supply agreements, deferred financing and other costs | | | 39.2 | | | 12.2 | | | 33.2 | | | 8.0 | | | 27.4 | | | 11.7 | | | 39.2 | | | 12.2 | | | |
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| | | | $ | 298.1 | | $ | 65.9 | | $ | 231.9 | | $ | 49.0 | | $ | 274.3 | | $ | 76.9 | | $ | 298.1 | | $ | 65.9 | | | |
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Estimated amortization expense for continuing operations in each of the next five years is as follows: | Year ended December 31 | | | | | 2008 | | $ | 24.4 | | 2009 | | | 21.2 | | $ | 21.9 | 2010 | | | 20.1 | | | 20.2 | 2011 | | | 19.3 | | | 19.2 | 2012 | | | 18.1 | | | 18.1 | 2013 | | | | 16.3 |
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
F—Earnings Per Share Basic and diluted earnings per share were calculated as follows: | | | | | | | | | | | | | | Year ended December 31
| | | | 2007
| | | 2006
| | 2005
| Earnings from continuing operations | | $ | 51.0 | | | $ | 235.6 | | $ | 218.1 | Earnings (loss) from discontinued operations | | | (62.2 | ) | | | 64.7 | | | 33.2 | | | |
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| Net earnings (loss) | | $ | (11.2 | ) | | $ | 300.3 | | $ | 251.3 | | | |
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| Weighted average number of common shares used in basic EPS | | | 179,367,322 | | | | 186,053,739 | | | 192,637,308 | Additional dilutive shares principally from the assumed exercise of outstanding stock options | | | 460,436 | | | | 778,983 | | | 937,379 | | | |
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| Weighted average number of common shares and dilutive potential common shares used in diluted EPS | | | 179,827,758 | | | | 186,832,722 | | | 193,574,687 | | | |
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| Basic EPS | | | | | | | | | | | Continuing operations | | $ | .28 | | | $ | 1.26 | | $ | 1.13 | Discontinued operations | | | (.34 | ) | | | .35 | | | .17 | | | |
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| Basic earnings (loss) per common share | | $ | (.06 | ) | | $ | 1.61 | | $ | 1.30 | | | |
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| Diluted EPS | | | | | | | | | | | Continuing operations | | $ | .28 | | | $ | 1.26 | | $ | 1.13 | Discontinued operations | | | (.34 | ) | | | .35 | | | .17 | | | |
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| Diluted earnings (loss) per common share | | $ | (.06 | ) | | $ | 1.61 | | $ | 1.30 | | | |
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As of December 31, 2007, 2006 and 2005, approximately 8.1, 2.7 and 4.3 million of the total 13.5, 12.7 and 12.4 million shares, respectively, issuable under employee and non-employee stock options were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.
| | | | | | | | | | | | | | | Year ended December 31
| | | | 2008
| | | 2007
| | | 2006
| Earnings from continuing operations | | $ | 122.9 | | | $ | 59.4 | | | $ | 236.1 | Earnings (loss) from discontinued operations | | | (18.5 | ) | | | (70.6 | ) | | | 64.2 | | | |
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| Net earnings (loss) | | $ | 104.4 | | | $ | (11.2 | ) | | $ | 300.3 | | | |
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| Weighted average number of common shares used in basic EPS | | | 167,952,381 | | | | 179,367,322 | | | | 186,053,739 | Additional dilutive shares principally from the assumed exercise of outstanding stock options | | | 233,949 | | | | 460,436 | | | | 778,983 | | | |
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| Weighted average number of common shares and dilutive potential common shares used in diluted EPS | | | 168,186,330 | | | | 179,827,758 | | | | 186,832,722 | | | |
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| Basic EPS | | | | | | | | | | | | Continuing operations | | $ | .73 | | | $ | .33 | | | $ | 1.26 | Discontinued operations | | | (.11 | ) | | | (.39 | ) | | | .35 | | | |
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| Basic earnings (loss) per common share | | $ | .62 | | | $ | (.06 | ) | | $ | 1.61 | | | |
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| Diluted EPS | | | | | | | | | | | | Continuing operations | | $ | .73 | | | $ | .33 | | | $ | 1.26 | Discontinued operations | | | (.11 | ) | | | (.39 | ) | | | .35 | | | |
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| Diluted earnings (loss) per common share | | $ | .62 | | | $ | (.06 | ) | | $ | 1.61 | | | |
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| Shares issuable under employee and non-employee stock options | | | 13.8 | | | | 13.5 | | | | 12.7 | Anti-dilutive shares excluded from diluted EPS computation | | | 10.8 | | | | 8.1 | | | | 2.7 |
G—Acquisitions The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated in 2008, 2007 2006 and 20052006 and any additional consideration paid for prior years’ acquisitions: | | | | 2007
| | 2006
| | 2005
| | | 2008
| | 2007
| | 2006
| | Accounts receivable | | $ | 14.3 | | | $ | 10.4 | | | $ | 43.6 | | | $ | .6 | | | $ | 14.3 | | | $ | 10.4 | | Inventory | | | 8.3 | | | | 5.5 | | | | 42.9 | | | | .2 | | | | 8.3 | | | | 5.5 | | Property, plant and equipment | | | 24.2 | | | | 4.4 | | | | 35.2 | | | | 1.7 | | | | 24.2 | | | | 4.4 | | Goodwill | | | 37.5 | | | | 38.4 | | | | 82.6 | | | | .9 | | | | 37.5 | | | | 38.4 | | Other intangible assets | | | 73.1 | | | | 52.4 | | | | 67.4 | | | | 2.0 | | | | 73.1 | | | | 52.4 | | Accounts payable and accrued liabilities | | | (19.6 | ) | | | (12.6 | ) | | | (51.6 | ) | | | — | | | | (19.6 | ) | | | (12.6 | ) | Other assets and liabilities, net | | | (6.2 | ) | | | (16.2 | ) | | | (10.5 | ) | | | (.2 | ) | | | (6.2 | ) | | | (16.2 | ) | Assumed debt | | | (23.9 | ) | | | (5.4 | ) | | | (35.4 | ) | | | — | | | | (23.9 | ) | | | (5.4 | ) | Additional consideration for prior years’ acquisitions | | | 3.6 | | | | 6.3 | | | | 6.8 | | | | 5.1 | | | | 3.6 | | | | 6.3 | | | | |
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| Net cash consideration | | $ | 111.3 | | | $ | 83.2 | | | $ | 181.0 | | | $ | 10.3 | | | $ | 111.3 | | | $ | 83.2 | | | | |
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LeggettDuring 2008, the Company acquired two businesses with purchase price over the fair value of the net identifiable assets acquired of $.9. Adjustments to and additional consideration for prior year acquisitions increased goodwill by $9.5, resulting in a total increase in goodwill of $10.4, of which $1.4 is expected to provide an income tax benefit. In Commercial Fixturing & Platt, IncorporatedComponents, the Company acquired one business that produces parts for our office furniture components division. In Residential, the Company acquired machinery and the process technology used to manufacture carpet underlay.
NotesThe Company is finalizing all the information required to Consolidated Financial Statements—(Continued)complete purchase price allocations related to certain recent acquisitions and does not anticipate any material modifications.
The unaudited pro forma consolidated net sales, net earnings and earnings per share as though the 2008 and 2007 acquisitions had occurred on January 1 of each year presented, are not materially different from the amounts reflected in the accompanying financial statements. During 2007, the Company acquired three businesses with purchase price over the fair value of the net identifiable assets acquired of $37.5. Adjustments to and additional consideration for prior year acquisitions increased goodwill by $1.4, resulting in a total increase in goodwill of $38.9, of which $10.3 is expected to provide an income tax benefit. The Company has not yet obtained all These acquired businesses manufacture and distribute products primarily to the information required to complete the purchase price allocation related to certain recent acquisitions. The Company does not believe that the additional information will materially modify the preliminary purchase price allocations. In Commercial Fixturing & Components, the Company acquired one business that produces office furniture components, including chair basesindustrial materials and casters. In Industrial Materials, the Company acquired one business that manufactures coated wire products, including racks for dishwashers. In Specialized Products, the Company acquired one business that is a designer and assembler of docking stations that secure computing and electronic equipment inside vehicles.
The unaudited pro forma consolidated net sales, as though the 2007 acquisitions had occurred on January 1 of each year presented, were $4,332.8 and $4,418.9 for the years ended December 31, 2007 and 2006, respectively. The unaudited pro forma consolidated net earnings and earnings per share are not materially different from the amounts reflected in the accompanying financial statements. These pro forma amounts are not necessarily indicative of either results of operations that would have occurred had the purchases been made on January 1 of each year or of future results of the combined companies.automotive markets.
During 2006, the Company acquired five businesses, with purchase price over the fair value of the net identifiable assets acquired of $38.4. Adjustments to and additional consideration for prior year acquisitions reduced goodwill by $6.2, resulting in a total increase in goodwill of $32.2, of which $6.2 is expected to provide an income tax benefit. All five businesses are in the Residential Furnishings segment. The largest manufactures rubber carpet underlay. The second largest distributes geotextiles, geogrids, and erosion control products. During 2005, the Company acquired twelve businesses, with purchase price over the fair value of the net identifiable assets acquired of $82.6. Adjustments to and additional consideration for prior year acquisitions of $2.8 increased goodwill by $85.4, of which $64.0 is expected to provide an income tax benefit. In Residential Furnishings, the Company acquired ten businesses. The largest converts and distributes geotextiles, erosion control products and silt fencing for the construction, landscape, and agricultural markets. The second largest manufactures rubber and felt carpet underlay. In Specialized Products, the Company acquired a business that designs, manufactures and supplies equipment for light and medium duty commercial trucks. The Dealer portion of this acquisition has been classified as held for sale in the 2007 Consolidated Balance Sheet and included in discontinued operations in the 2007, 2006 and 2005 Consolidated Statements of Operations. In Commercial Fixturing & Components, the Company acquired a business that manufactures metal fixtures and displays.
The results of operations of the above acquired companies have been included in the consolidated financial statements since the dates of acquisition. The terms of certain of the Company’s acquisition agreements provide for additional consideration to be paid if the acquired company’s performance exceeds certain targeted levels. Such additional consideration may be paid in cash, and is recorded when earned as additional purchase price. At December 31, 2007, the maximum2008, there is no substantial remaining amount of additional consideration is approximately $2.1 and will be payable, if earned, through 2008. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)payable.
H—Accounts and Other Receivables Accounts and other receivables at December 31 consisted of the following: | | | | 2007
| | 2006
| | | 2008
| | 2007
| | Trade | | $ | 624.7 | | | $ | 821.7 | | | $ | 515.7 | | | $ | 624.7 | | Other | | | 33.7 | | | | 50.2 | | | | 62.3 | | | | 33.7 | | | | |
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| Total accounts and other receivables | | | 658.4 | | | | 871.9 | | | | 578.0 | | | | 658.4 | | Allowance for doubtful accounts | | | (18.2 | ) | | | (18.1 | ) | | | (27.5 | ) | | | (18.2 | ) | | | |
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| Total | | $ | 640.2 | | | $ | 853.8 | | | $ | 550.5 | | | $ | 640.2 | | | | |
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I—Supplemental Balance Sheet Information Sundry assets, accrued expenses, other current liabilities and other long-term liabilities at December 31 consisted of the following: | | | | 2007
| | 2006
| | 2008
| | 2007
| Sundry assets | | | | | | | | | Pension plan assets | | $ | 35.2 | | $ | 11.0 | | $ | .5 | | $ | 35.2 | Notes receivable, net of allowance of $4.5 and $3.8 at December 31, 2007 and 2006, respectively | | | 22.4 | | | 19.6 | | Notes receivable, net of allowance of $10.3 and $4.5 at December 31, 2008 and 2007, respectively | | | | 45.9 | | | 22.4 | Other | | | 20.6 | | | 26.5 | | | 24.1 | | | 20.6 | | | |
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| | | | $ | 78.2 | | $ | 57.1 | | $ | 70.5 | | $ | 78.2 | | | |
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| Accrued expenses | | | | | | | | | Wages and commissions payable | | $ | 59.3 | | $ | 68.7 | | $ | 56.6 | | $ | 59.9 | Workers’ compensation, medical, auto and product liability | | | 72.8 | | | 73.7 | | | 78.0 | | | 72.8 | Sales promotions | | | 31.5 | | | 38.7 | | | 26.4 | | | 31.5 | General taxes, excluding income taxes | | | | 14.2 | | | 14.2 | Accrued interest | | | | 10.9 | | | 12.1 | Other | | | 111.0 | | | 86.9 | | | 48.8 | | | 68.2 | | | |
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| | | | $ | 274.6 | | $ | 268.0 | | $ | 234.9 | | $ | 258.7 | | | |
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| Other current liabilities | | | | | | | | | Outstanding checks in excess of book balances | | $ | 70.0 | | $ | 53.0 | | $ | 13.2 | | $ | 70.0 | Dividends payable | | | 42.4 | | | 30.4 | | | 39.0 | | | 42.4 | Other | | | 23.9 | | | 28.8 | | | 32.0 | | | 39.8 | | | |
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| | | | $ | 136.3 | | $ | 112.2 | | $ | 84.2 | | $ | 152.2 | | | |
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| Other long-term liabilities | | | | | | | | | Deferred compensation | | $ | 21.4 | | $ | 22.0 | | $ | 19.2 | | $ | 21.4 | Liability for pension benefits | | | 11.0 | | | 25.2 | | | 29.1 | | | 11.0 | Reserves for tax contingencies | | | 34.8 | | | 16.3 | | | 38.4 | | | 34.8 | Minority interest | | | | 17.9 | | | 15.5 | Other | | | 29.1 | | | 32.4 | | | 11.7 | | | 13.6 | | | |
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| | | | $ | 96.3 | | $ | 95.9 | | $ | 116.3 | | $ | 96.3 | | | |
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Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
J—Long-Term Debt Long-term debt, weighted average interest rates and due dates at December 31 are as follows: | | | | | | | | | | 2007
| | 2006
| Term notes, net—average interest rates of 4.9% and 5.0% for 2007 and 2006, respectively, due dates through 2018 | | $ | 813.7 | | $ | 838.4 | Industrial development bonds, principally variable interest rates of 3.6% and 4.2% for 2007 and 2006, respectively, due dates through 2030 | | | 32.0 | | | 39.7 | Bank note, variable interest rate based on 90-day Euribor plus .25% | | | — | | | 38.5 | Capitalized leases | | | 15.5 | | | 18.5 | Commercial paper—weighted average interest rates of 4.6% and 5.3% for 2007 and 2006, respectively | | | 205.0 | | | 154.4 | Other, partially secured | | | 23.1 | | | 22.5 | | | |
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|
| | | | | 1,089.3 | | | 1,112.0 | Less current maturities | | | 88.7 | | | 52.0 | | | |
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|
| | | | $ | 1,000.6 | | $ | 1,060.0 | | | |
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| | | | | | | | | | 2008
| | 2007
| Term notes, net—average interest rates of 4.8% and 4.9% for 2008 and 2007, respectively, due dates through 2018 | | $ | 742.5 | | $ | 813.7 | Industrial development bonds, principally variable interest rates of 2.1% and 3.6% for 2008 and 2007, respectively, due dates through 2030 | | | 31.5 | | | 32.0 | Capitalized leases | | | 5.0 | | | 15.5 | Commercial paper—weighted average interest rates of 3.2% and 4.6% for 2008 and 2007, respectively | | | 77.6 | | | 205.0 | Other, partially secured | | | 17.0 | | | 23.1 | | | |
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|
| | | | | 873.6 | | | 1,089.3 | Less current maturities | | | 22.4 | | | 88.7 | | | |
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| | | | $ | 851.2 | | $ | 1,000.6 | | | |
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Capitalized leases consist primarily of machinery, vehicle and office equipment leases. Since 2003, the Company has issued $730 of fixed-rate debt, with an average remaining life of 7.56.5 years and a weighted average coupon rate of 4.7%. To further facilitate the issuance of debt and other securities, $300 remains available under a shelf registration. On December 16, 2003, the Company entered into a hedge associated with a net investment in a Swiss subsidiary. See Note R for more discussion of this agreement.
The Company hascan raise cash by issuing up to $600 of debt capital availablein commercial paper through a commercial paper program of which $205.0 was outstanding at December 31, 2007. The commercial paper programthat is supportedbacked by a $600 syndicated revolving credit agreement.commitment with a syndicate of 16 lenders that terminates in 2012. At December 31, 2008, $77.6 of commercial paper was outstanding under this program and is classified as long-term debt. Under the syndicated agreement, the Company may elect to borrow based on 1) the bank’s primary lending rate, 2) the Moneyline Telerate plus a fixed spread percentage, 3) a competitive variable or set rate acceptable by the Company, or 4) for short-term administrative convenience, the weighted average rate on overnight Federal funds transactions, plus 3/4 of 1%. This agreement will terminate on April 30, 2012, at which time any outstanding balances will become due. There were no amounts outstanding under the revolving credit agreement at December 31, 20072008 and 2006.2007. The revolving credit agreement and certain other long-term debt contain restrictive covenants which, among other things, limit a) the amount of total indebtedness to 60% of the Company’s total capitalization (each as defined in the revolving credit agreement), b) the amount of total secured debt to 15% of the Company’s total consolidated assets, and c) the amount of assets sold, transferred or disposed of in any trailing four quarter period to 20% of total consolidated assets. The Company remained in compliance with all such covenants during the years ended December 31, 20072008 and 2006. Leggett & Platt, Incorporated2007.
NotesOur commercial paper program has continued to Consolidated Financial Statements—(Continued)operate efficiently during the recent disruption of global credit markets. This change in the global credit market has resulted in a temporary increase in the effective borrowing rate for the commercial paper issued. In the event that the disruption of global credit markets was to become so severe that we were unable to issue commercial paper, we have the contractual right to draw funds directly on the underlying bank credit commitment. In such event, the cost of borrowing under the credit commitments could be higher than the cost of commercial paper borrowing. The revolving credit commitments can also be utilized to replace outstanding letters of credit. To the extent that we utilize these commitments for letters of credit, it would reduce our commercial paper/loan capacity by a corresponding amount. Based on the information currently available to us, we believe that lenders continue to have the ability to meet their obligations under the facility.
Maturities of long-term debt are as follows: | Year ended December 31 | | | | | 2008 | | $ | 88.7 | | 2009 | | | 17.6 | | $ | 22.4 | 2010 | | | 12.6 | | | 10.1 | 2011 | | | 1.0 | | | 3.4 | 2012 | | | 205.9 | | | 78.5 | 2013 | | | | 200.5 | Thereafter | | | 763.5 | | | 558.7 | | | |
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| | | | $ | 1,089.3 | | $ | 873.6 | | | |
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K—Lease Obligations The Company leases certain operating facilities, most of its automotive and trucking equipment and various other assets. Lease terms, including purchase options, renewals and maintenance costs, vary by lease. Total rental expense from continuing operations was $56.9, $63.2 $64.6 and $53.5$64.6 for the years ended December 31, 2008, 2007 2006 and 2005,2006, respectively. Future minimum rental commitments for all long-term non-cancelable operating leases included in continuing operations are as follows: | Year ended December 31 | | | | | 2008 | | $ | 41.7 | | 2009 | | | 32.4 | | $ | 36.9 | 2010 | | | 24.8 | | | 28.8 | 2011 | | | 18.2 | | | 21.8 | 2012 | | | 13.6 | | | 16.4 | 2013 | | | | 10.5 | Later years | | | 17.6 | | | 16.0 | | | |
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| | | | $ | 148.3 | | $ | 130.4 | | | |
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The above lease obligations expire at various dates through 2017. Aggregate rental commitments above include renewal amounts where it is the intention of the Company to renew the lease. Total rental expense for discontinued operations, which are not included in the amounts above, was $7.7, $9.7 $10.0 and $8.5$10.0 for the years ended December 31, 2008, 2007 2006 and 2005,2006, respectively. The future minimum rental commitments for the discontinued operations are $7.1 in 2008, $5.0$3.1 in 2009, $3.4$2.8 in 2010, $2.1$2.2 in 2011, $1.2$1.5 in 2012, $1.1 in 2013 and $2.8$1.9 in later years. L—Capital Stock and Stock-Based Compensation CAPITAL STOCK Activity in the Company’s stock accounts for each of the three years ended December 31 is as follows: | | | | | | | | | Common
Stock
| | Treasury
Stock
| | Balance, January 1, 2006 | | 198,799,543 | | (16,223,009 | ) | Shares issued | | — | | 1,617,989 | | Treasury stock purchased | | — | | (6,240,673 | ) | | | |
| |
|
| Balance, December 31, 2006 | | 198,799,543 | | (20,845,693 | ) | Shares issued | | — | | 2,156,678 | | Treasury stock purchased | | — | | (11,385,103 | ) | | | |
| |
|
| Balance, December 31, 2007 | | 198,799,543 | | (30,074,118 | ) | Shares issued | | — | | 2,924,212 | | Treasury stock purchased | | — | | (15,835,692 | ) | | | |
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|
| Balance, December 31, 2008 | | 198,799,543 | | (42,985,598 | ) | | | |
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Stock options and stock units are granted pursuant to the Company’s Flexible Stock Plan. At December 31, 2008, a total of 25,410,763 common shares were authorized for issuance under the Flexible Stock Plan. This amount represents 13,798,776 unexercised options; 4,557,641 outstanding stock units; and 7,054,346 shares that remain available for grant (of the outstanding stock units, 3,553,032 are vested and 1,004,609 are unvested). The Company issues shares from treasury for stock option exercises and stock unit conversions, as well as for employee purchases of common stock made through the Discount Stock Plan and Stock Bonus Plan. STOCK-BASED COMPENSATION Effective January 1, 2006, the Company adopted FASB Statement No. 123(R) “Share-Based Payment” (SFAS 123R) which clarifies and expands the provisions of SFAS 123 “Accounting of Stock-Based Compensation.” The Company adopted SFAS 123R usinguses various forms of share-based compensation which are summarized below. Awards are provided in the modified-prospective methodform of common stock, stock options, stock units, restricted stock, restricted units and as such, resultsperformance stock units. One stock unit is equivalent to one common share for prior periods have not been retrospectively adjusted. Because the Company had previously adopted, as of January 1, 2003, the fair value recognition provisions of SFAS 123 under the prospective transition method, the adoption of SFAS 123R did not have a significant effect on 2007accounting and 2006 results, nor is it expected to have a significant effect.
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)earnings per share purposes.
The following table recaps the impact of stock-based compensation on the results of operations (including discontinued operations) for each of the years ended December 31: | | | | 2007
| | 2006
| | 2005
| | 2008
| | 2007
| | 2006
| Amortization of the grant date fair value of stock options | | $ | 8.3 | | $ | 6.7 | | $ | 4.0 | | $ | 7.0 | | $ | 8.5 | | $ | 6.7 | Company match in stock-based retirement plans | | | 9.2 | | | 8.2 | | | 8.3 | | Discounts on common stock and stock units | | | 4.9 | | | 5.2 | | | 5.1 | | Stock-based retirement plans including discounts (2) | | | | 8.5 | | | 10.7 | | | 9.9 | Discounts on Discount Stock Plan and Deferred Compensation Program (3)(4) | | | | 2.7 | | | 3.2 | | | 3.6 | Performance Stock Unit Awards (5) | | | | 2.6 | | | — | | | — | Other, primarily non-employee directors restricted stock | | | | .8 | | | .6 | | | .4 | | | |
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| Total stock-based compensation expense | | $ | 22.4 | | $ | 20.1 | | $ | 17.4 | | $ | 21.6 | | $ | 23.0 | | $ | 20.6 | | | |
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| Recognized tax benefits | | $ | 8.5 | | $ | 7.8 | | $ | 5.7 | | $ | 8.2 | | $ | 8.8 | | $ | 8.0 | | | |
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| Stock-based compensation elected by employees in lieu of cash compensation | | $ | 26.6 | | $ | 28.5 | | $ | 27.4 | | $ | 20.0 | | $ | 26.0 | | $ | 28.0 | | | |
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When the tax deduction for an exercised stock option or converted stock unit exceeds the compensation cost that has been recognized in income, a “windfall” tax benefit is created. The windfall benefit is not recognized in income, but rather on the balance sheet as additional contributed capital. When the current tax deduction for an exercised stock option or converted stock unit is less than the deferred tax asset recorded in regard to the compensation cost that has been recognized in income, a tax “shortfall” is created. To the extent the Company has accumulated tax “windfalls” the shortfall is recognized on the balance sheet as a reduction of additional contributed capital. The additional windfall tax benefit realizedshortfall resulting from exercises and conversions for the year ended December 31, 20072008 was $1.4. The Company uses various forms of share-based compensation which are summarized below. Awards are provided in the form of common stock, stock options, stock units and restricted stock. One stock unit is equivalent to one common share for accounting and earnings per share purposes. The Company has only granted restricted stock to non-employee directors and those grants have not been material.
Activity in the Company’s stock accounts for each of the three years ended December 31 is as follows:
| | | | | | | | | Common
Stock
| | Treasury
Stock
| | Balance, January 1, 2005 | | 198,799,543 | | (7,913,525 | ) | Shares issued | | — | | 1,960,433 | | Treasury stock purchased | | — | | (10,269,917 | ) | | | |
| |
|
| Balance, December 31, 2005 | | 198,799,543 | | (16,223,009 | ) | Shares issued | | — | | 1,617,989 | | Treasury stock purchased | | — | | (6,240,673 | ) | | | |
| |
|
| Balance, December 31, 2006 | | 198,799,543 | | (20,845,693 | ) | Shares issued | | — | | 2,156,678 | | Treasury stock purchased | | — | | (11,385,103 | ) | | | |
| |
|
| Balance, December 31, 2007 | | 198,799,543 | | (30,074,118 | ) | | | |
| |
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|
Stock options and stock units are issued pursuant to the Company’s Flexible Stock Plan. At December 31, 2007, a total of 21,075,270 common shares were authorized for issuance under the Flexible Stock Plan. This amount represents 13,490,459 unexercised options; 3,187,763 outstanding stock units; and 4,397,048 shares that remain available for grant (of the 3,187,763 outstanding stock units, 3,108,183 are vested and 79,580 are unvested).
The Company issues shares from treasury for stock option exercises and stock unit conversions, as well as for employee purchases of common stock made through the Discount Stock Plan and Stock Bonus Plan.
Leggett & Platt, Incorporated$.9.
Notes to Consolidated Financial Statements—(Continued)
(1) Stock Option Grants The Company typically grants stock options annually on a discretionary basis to a broad group of employees. Options generally become exercisable in one-third increments at 18 months, 30 months and 42 months after the date of grant. These optionsOptions have a maximum term of ten years and are issued withthe exercise prices are equal to the marketLeggett’s closing stock price of Leggett common stock on the grant date. Prior to 2005, somethe Company granted options grantedwith a below market exercise price under the program were below market.terms of its Deferred Compensation Program. In 2005, the Company beganamended the Program to exclusively grantprovide for “at market” stock options under the program.options. During 2007,2008, discretionary and Deferred Compensation grants totaled 2 million options with an aggregate grant date fair value of $9.7$4.8 under the Black-Scholes method. The Company does not grant a significant number of non-employee stock options.option pricing model. BeginningThe estimated grant date fair value of options is amortized by the straight-line method over the options’ total vesting period. However, beginning January 1, 2007, the Company amended its standard stock option terms to increase the post-employment vesting and exercise period for employees who terminate due to retirement. A “retirement” termination occurs if the employee is age 65, or age 55 with 20 years of Company service at termination. For retirement terminations, options continue to vest and remain exercisable for 3 years and 6 months after termination of employment. Therefore, the expense for these options is recognized as soon asaccelerated when the employee is retirement eligible.
(2) Stock-Based Retirement Plans The Company has two stock-based retirement plans: the tax-qualified Stock Bonus Plan (SBP) for non-highly compensated employees, and the non-qualified Executive Stock Unit Program (ESUP) for highly compensated employees. The Company makes matching contributions to both plans. Participants in the SBP may contribute up to 6% of their compensation above a certain threshold to purchase Leggett stock or other investment alternatives at market prices. The Company immediately matches 50% of the employee contributions. Effective January 1, 2007, employees in the SBP are allowed to fully diversify their employee deferral accounts immediately and their employer accounts after three years of service. Previously, diversification was limited by certain age and service requirements. Dividends earned on Company stock held in the SBP are reinvested or paid in cash at the participant’s election. Participants in the ESUP may contribute up to 10% (depending upon salary level) of their compensation above the same threshold applicable to the SBP. The Company immediately matches 50% of the employee contributions. Contributions to the ESUP, including dividend equivalents, are used to acquire stock units at 85% of the common stock market price. Stock units are converted to common stock at a 1-to-1 ratio upon distribution from the program. The ESUP offers no diversification opportunity. In addition to the automatic 50% match, the Company will make another matching contribution of up to 50% of the employee’s contributions for the year if the Company meets certain profitability levels, as defined in the SBP and the ESUP. Company matches in the SBP and ESUP fully vest upon three and five years, respectively, of cumulative service, subject to certain participation requirements. Distributions under both plans are triggered by an employee’s retirement, death, disability or separation from the Company. During 2008, employees contributed a total of approximately $9.1 into these plans, including $.8 related to 2007 bonuses paid in 2008. The Company match expensed in 2008 totaled $6.7 and the discount expense on stock units was $1.8. (3) Discount Stock Plan Under the Discount Stock Plan (DSP), a tax-qualified §423 stock purchase plan, eligible employees may purchase shares of Leggett common stock at 85% of the closing market price on the last business day of each month. Prior to January 2009 shares purchased under the plan were issued annually and dividends earned prior to issuance were used to purchase additional shares. Starting in January 2009, shares will be purchased and issued on the last business day of each month with a one year restriction from transfer or sale. Employees purchased 530,119 shares under the DSP during 2008 at an average purchase price of $14.88 per share, net of the discount. In 2008, the total discount expense related to the DSP was approximately $1.4. Since inception of the DSP in 1982, a total of 20,962,197 shares have been purchased by employees. Eligible employees may purchase a maximum of 23,000,000 shares under the plan. (4) Deferred Compensation Program The Company offers a Deferred Compensation Program under which key managers and outside directors may elect to receive at-market stock options, stock units or interest-bearing cash deferrals in lieu of cash compensation. Stock options under this program are granted inon December 31 of the year immediately prior to the year the compensation is earned. In 2005,The number of options granted equals the Company began todeferred compensation divided by the stock’s market price on the date of grant, at-market stock options with a ten year term, instead of discount options with 15 year terms, as had previously been offered.times five. Options vest as the associated compensation is earned and are exercisable beginning 15 months after the date of grant.grant date. Stock is issued when the option is exercised. StockDeferred stock units (DSU) under this program are acquired every two weeks (when the compensation would have otherwise been paid) at a 20% discount to the market price of the Company’s common stock when purchased and they vest immediately. Expense is recorded as the compensation is earned. Stock units earn dividends at the same rate as cash dividends paid on the Company’s common stock. These dividends are used to acquire stock units at a 20% discount. Stock units are converted to common stock and distributed in accordance with the participant’s pre-set election. Participants must begin receiving distributions no later than ten years after the effective date of the deferral and installment distributions cannot exceed ten years. Employees deferred compensation (including bonuses) of $5.3 into the DSU plan and $.9 into stock options during 2008.
Cash compensation deferred during 2007 as either stockBelow is a summary of the number of options or stock units totaled approximately $6.2, of which $2.2 related to bonuses accrued and expensed in 2006. In addition, approximately $1.3 of bonuses accrued and expensed in 2007 are subject to employee deferral elections and will be paid in the form of stock options or stock units. Options and units associated with bonuses vest as of December 31 ofemployees received in exchange for compensation during 2008 and the year earned. Approximately 69,385 stock options with a totalrelated grant date fair value of $.4, and 225,557 stock units with a total grant date value of $5.1, were earned and vested during 2007 under the Deferred Compensation Program. An additional 245,821 stock options with an aggregate grant date fair value of $1.1, and 56,000 stock units with an aggregate value of $1.3, were earned and vested in association with 2006 bonuses that were distributed in the first quarter of 2007.value:
| | | | | | | | | | Options
| | Units
| Number of options or units | | | 196,008 | | | 340,482 | Total grant date fair value | | $ | .7 | | $ | 6.7 |
Stock-Based Retirement Plans(5) Performance Stock Unit Awards
TheIn 2008, the Company has two stock-based retirement plans: the tax-qualified Stock Bonus Plan (SBP) for non-highly compensated employees and the non-qualified Executivegranted Performance Stock Unit Program (ESUP)(PSU) awards to selected officers and other key managers for highly compensated employees.the first time. The Company makes matching contributions to both plans. The SBP has two components; participants in Contribution Formula 1 receivevalue of these awards is determined using a 50% match on their contributions up to 6%, while
Leggett & Platt, IncorporatedMonte Carlo simulation, and expense is recognized over the three-year performance period. These awards contain the following conditions:
NotesA service requirement—Awards generally “cliff” vest three years following the grant date; and
A market condition—Awards are based on the Company’s Total Shareholder Return [TSR = (Change in Stock Price + Dividends) / Beginning Stock Price] as compared to Consolidated Financial Statements—(Continued) participantsthe TSR of a group of peer companies. The peer group consists of all the companies in Contribution Formula 2 receive a 50% match on their contributions up to 2%the Industrial, Materials and Consumer Discretionary sectors of the S&P 900 (approximately 330 companies). Participants in the ESUP receive a 50% match on their employee contributions. In addition, the Company may make another 50% matching contribution (based on the same restrictions mentioned above) on an annual basis if certain profitability levels, as defined in the SBP and the ESUP, are attained. Company matches in the SBP and ESUP fully vest upon three and five years, respectively, of cumulative service, subjectwill earn from 0% to certain participation requirements. Distributions under both plans are triggered by an employee’s retirement, death, disability or separation from the Company.
Contributions to the ESUP, including dividend equivalents, are used to acquire stock units at 85%175% of the common stock market price. Stock units are converted to common stock at a 1-to-1 ratiobase award (the base award is 516,525 total shares) depending upon distribution fromhow the program. The ESUP offers no diversification opportunity.
Contributions toCompany’s Total Shareholder Return ranks within the SBP are used to purchase Leggett stock or other investment alternatives at market prices. Effective January 1, 2007, employees in the SBP are allowed to fully diversify their employee deferral accounts immediately and their employer accounts after three years of service. Previously, diversification was limited by certain age and service requirements. Dividends earned on Company stock held in the SBP are reinvested or paid in cashpeer group at the participant’s election.
During the twelve months of 2007, a total of approximately $9.0 of employee contributions were made into these plans, including $1.0 related to 2006 bonuses paid in 2007. The Company match expensed in 2007 totaled $9.0 and the discount expense on stock units was $1.8.
Discount Stock Plan
Under the Discount Stock Plan (DSP), a tax-qualified §423 stock purchase plan, eligible employees may purchase shares of Leggett common stock at 85%end of the closing market price on the last business day of each month. Shares purchased under the plan are issued annually and dividends earned prior to issuance are used to purchase additional shares. Shares purchased by employees under the DSP during 2007 totaled 568,895 and were made at an average purchase price of $18.27 per share, net of the discount. In 2007, the total discount expense related to the DSP was approximately $1.8. Since inception of the DSP in 1982, a total of 20,432,078 shares have been purchased by employees. Eligible employees may purchase a maximum of 23,000,000 shares under the plan.3-year performance period.
COMPENSATION COST NOT YET RECOGNIZED As of December 31, 2007,2008, the unrecognized cost of non-vested stock-based compensationstock options was $7.1, all of which relates to non-vested stock options.$4.9. This amount is expected to be recognized over a weighted-average period of 1.25one year. The unrecognized cost of stock unit awards was $5.6, to be recognized over a weighted-average period of 1.1 years. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
STOCK OPTIONS A summary of the Company’s employee stock option activity for the plans discussed above (including discontinued operations) as of December 31, 20072008 and changes during the year then ended, is as follows: | | | | | | | | | | Shares
| | | Weighted
Average
Exercise Price
per Share
| Outstanding at December 31, 2006 | | 12,545,875 | | | $ | 17.69 | Granted | | 1,967,001 | | | | 22.81 | Exercised | | (827,849 | ) | | | 9.61 | Expired | | (158,868 | ) | | | 21.53 | Forfeited | | (198,370 | ) | | | 23.91 | | | |
|
| |
|
| Outstanding at December 31, 2007 | | 13,327,789 | | | $ | 18.81 | | | |
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|
| Options exercisable at | | | | | | | December 31, 2007 | | 10,212,993 | | | $ | 17.39 |
The total intrinsic value (market price in excess of exercise price) of options exercised during the twelve months ended December 31, 2007, 2006 and 2005 was $10.2, $11.0 and $8.1, respectively. The cash received from these option exercises was $8.0, $12.0 and $9.5.
At December 31, 2007, the following table summarizes those employee stock options that either have vested or are expected to vest (net of expected forfeitures). A portion of these options were granted in conjunction with the Deferred Compensation Program under which employees elected to receive stock options in lieu of otherwise payable cash compensation. The total fair value of shares vested during the years ended December 31, 2007, 2006 and 2005 was $6.2, $5.3 and $10.6, respectively.
| | | | | | | | | | | | | | | | | Options Vested and Expected to Vest
| Range of Exercise Prices
| | Number
Outstanding*
| | Weighted-
Average
Remaining
Contractual
Life
In Years
| | Weighted-
Average
Exercise
Price
| | Aggregate
Intrinsic
Value**
| | Associated
Employee-
Deferred
Compensation
| $ .01 – $ .25 | | 633,860 | | 3.6 | | $ | .05 | | $ | 11,022,845 | | $ | 7,050,750 | 3.09 – 4.70 | | 1,808,391 | | 8.6 | | | 3.93 | | | 24,438,541 | | | 23,944,340 | 10.00 – 15.00 | | 17,500 | | 3.3 | | | 14.01 | | | 60,075 | | | — | 15.31 – 20.00 | | 3,089,754 | | 3.3 | | | 18.79 | | | 69,297 | | | 193,961 | 20.03 – 28.67 | | 7,552,426 | | 7.1 | | | 23.82 | | | — | | | 7,873,800 |
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| $ .01 – $28.67 | | 13,101,931 | | 6.2 | | $ | 18.72 | | $ | 35,590,758 | | $ | 39,062,851 |
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| | | | | | | | | | | | | | | | | | | Employee
Stock
Options
| | | Deferred
Compensation
Options
| | | Other
Options*
| | | Total
Options
| | | Weighted
Average
Exercise Price
per Share
| Outstanding at December 31, 2007 | | 9,104,446 | | | 4,223,343 | | | 162,670 | | | 13,490,459 | | | $ | 18.80 | Granted | | 1,812,582 | | | 187,157 | | | — | | | 1,999,739 | | | | 16.81 | Exercised | | (632,382 | ) | | (268,773 | ) | | (16,919 | ) | | (918,074 | ) | | | 13.43 | Expired | | (372,695 | ) | | — | | | — | | | (372,695 | ) | | | 22.38 | Forfeited | | (400,653 | ) | | — | | | — | | | (400,653 | ) | | | 22.04 | | | |
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| Outstanding at December 31, 2008 | | 9,511,298 | | | 4,141,727 | | | 145,751 | | | 13,798,776 | | | $ | 18.68 | | | |
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| * | Net of anticipated forfeitures.Primarily outside directors options |
** | Number outstanding times the excess of the December 31, 2007 market price over the option exercise price. |
Leggett & Platt, Incorporated
| | | | | | | | | | | | | 2008
| | 2007
| | 2006
| Total intrinsic value of stock options exercised | | $ | 7.4 | | $ | 10.2 | | $ | 11.0 | Cash received from stock options exercised | | | 4.8 | | | 8.0 | | | 12.0 | Total fair value of stock options vested | | | 7.2 | | | 6.2 | | | 5.3 |
NotesInformation related to Consolidated Financial Statements—(Continued)
The following table summarizes employee stock options that are exercisable at December 31, 2007:2008 is as follows:
| | | | | | | | | | | | | | Options Exercisable
| Range of Exercise Prices
| | Number
Outstanding
| | Weighted-Average
Remaining
Contractual Life
In Years
| | Weighted-
Average
Exercise Price
| | Aggregate
Intrinsic Value
| $ .01 – $ .25 | | 633,860 | | 3.6 | | $ | .05 | | $ | 11,022,845 | 3.09 – 4.70 | | 1,808,391 | | 8.6 | | | 3.93 | | | 24,438,541 | 10.00 – 15.00 | | 17,500 | | 3.3 | | | 14.01 | | | 60,075 | 15.31 – 20.00 | | 2,842,392 | | 2.7 | | | 18.90 | | | 69,297 | 20.03 – 28.67 | | 4,910,850 | | 6.4 | | | 23.72 | | | — |
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| $ .01 – $28.67 | | 10,212,993 | | 5.6 | | $ | 17.39 | | $ | 35,590,758 |
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| | | | | | | | | | | | December 31, 2008
| | Shares
| | Weighted-
Average
Exercise Price
| | Weighted-
Average
Remaining
Contractual Life
In Years
| | Aggregate
Intrinsic Value
| | Outstanding | | 13,798,776 | | $ | 18.68 | | 6.0 | | $ | (48,093,460 | ) | Vested or expected to vest | | 13,753,333 | | | 18.68 | | 6.0 | | | (48,013,026 | ) | Exercisable | | 10,357,548 | | | 18.46 | | 5.2 | | | (33,837,715 | ) |
The weighted-average per-share fair value of the options granted during the twelve months ended December 31, 2007, 2006 and 2005 was $4.94, $5.68 and $5.35, respectively. The estimated grant date fair value of options is amortized by the straight line method over the options’ total vesting period.
The following table summarizes the weighted-average per share fair value and related assumptions used to calculate the grant date fair value of options granted during the twelve months ended December 31, 2008, 2007 2006 and 2005.2006. Fair values were calculated using the Black-Scholes option pricing model. | Key assumptions
| | 2007
| | 2006
| | 2005
| | | | | | | 2008
| | 2007
| | 2006
| | Weighted-average per share fair value | | | $ | 2.43 | | | $ | 4.94 | | | $ | 5.68 | | Risk-free interest rate | | 4.5 | % | | 4.4 | % | | 4.0 | % | | | 3.3 | % | | | 4.5 | % | | | 4.4 | % | Expected life in years | | 6.7 | | | 6.7 | | | 6.3 | | | | 6.6 | | | | 6.7 | | | | 6.7 | | Expected volatility (over expected life) | | 24.5 | % | | 27.3 | % | | 25.7 | % | | | 27.3 | % | | | 24.5 | % | | | 27.3 | % | Expected dividend yield (over expected life) | | 3.6 | % | | 3.2 | % | | 3.3 | % | | | 6.0 | % | | | 3.6 | % | | | 3.2 | % |
The risk-free rate is determined based on U.S. Treasury yields in effect at the time of grant for maturities equivalent to the expected life of the option. The expected life of the option (estimated average period of time the option will be outstanding) is estimated based on the historical exercise behavior of employees, with executives displaying somewhat longer holding periods than other employees. Expected volatility is based on historical volatility measured daily for a time period equal to the option’s expected life, ending on the day of grant. The expected dividend yield is estimated based on the dividend yield at the time of grant, adjusted for expected dividend increases and historical payout policy.grant. STOCK UNITS A summary of the status ofnonvested stock units outstanding for the plans discussed above at December 31, 20072008 and changes during the twelve months then ended is presented below: | | | | | | | | | | Units
| | | Weighted
Average
Grant Date
Fair Value
per Unit
| Nonvested at January 1, 2007 | | 64,472 | | | $ | 24.51 | Granted | | 859,733 | | | | 21.70 | Vested | | (835,936 | ) | | | 21.74 | Forfeited | | (8,689 | ) | | | 24.27 | | | |
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| Nonvested at December 31, 2007 | | 79,580 | | | $ | 23.29 | | | |
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| | | | | | | | | | | | | | | | | | | | ESUP
| | | DSU
| | | PSU
| | Other*
| | Total Units
| | | Weighted
Average
Grant Date
Fair Value
per Unit
| Nonvested at January 1, 2008 | | 79,580 | | | — | | | — | | — | | 79,580 | | | $ | 23.29 | Granted based on current service | | 747,955 | | | 395,188 | | | — | | 41,254 | | 1,184,397 | | | | 16.66 | Granted based on future conditions | | — | | | — | | | 903,750 | | — | | 903,750 | | | | 8.66 | Vested | | (735,225 | ) | | (395,188 | ) | | — | | — | | (1,130,413 | ) | | | 16.90 | Forfeited | | (32,705 | ) | | — | | | — | | — | | (32,705 | ) | | | 21.31 | | | |
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| Nonvested at December 31, 2008 | | 59,605 | | | — | | | 903,750 | | 41,254 | | 1,004,609 | | | $ | 9.56 | | | |
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Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)* Primarily outside directors units
At December 31, 2007,2008, there were 3,108,1833,553,032 fully vested stock units outstanding with an aggregate intrinsic value of $54.2.$54.0. The intrinsic value of nonvested stock units all of which relate to the Executive Stock Unit Program and are expected to vest, was $1.4$15.3 at December 31, 2007.2008. The total intrinsic value of stock units converted to common stock during 2008, 2007 and 2006 was $1.0, $2.5 and 2005 was $2.5, $1.2, and $3.3, respectively. SHAREHOLDER PROTECTION RIGHTS PLAN In 1999, the Company declared a dividend distribution of one preferred stock purchase right (a Right) for each share of common stock. Thestock which expired February 15, 2009. These Rights arewere attached to and traded with the Company’s common stock. The Rights becomestock and became exercisable only under certain circumstances involving actual or potential acquisitions of the Company’s common stock. The Rights currently remain in existence until February 2009, unless they are exercised, exchanged or redeemed at an earlier date. Depending upon the circumstances, if these Rights become exercisable, the holder may be entitled to purchase shares of Series A junior preferred stock of the Company, shares of the Company’s common stock or shares of common stock of the acquiring entity. M—Employee Benefit Plans Effective December 31, 2006,On January 1, 2008, the Company adopted the recognition and disclosure provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” For periods priorPlans” which requires it to December 31, 2006, the Company has accounted for its defined benefit pension plans as required by SFAS 87 “Employers’ Accounting for Pensions.” SFAS 158 amended SFAS 87 to require recognition ofmeasure the funded status of benefitits plans in the balance sheet and to recognize as a component of other comprehensive income changes in funded status from year to year that are not otherwise reflected in net income. The incremental effect of applying SFAS 158 on the Company’send beginning with its December 31, 20062008 balance sheetsheet. The Company previously used September 30 as the measurement date for its most significant plans. The Company chose to perform a measurement that covered the 15-month period of October 1, 2007 through December 31, 2008. Upon implementation, a proportionate allocation was made to cover the net benefit income for the transition period and the Company recorded a $23.0 decrease in “Other assets—Sundry”, $.6$.5 (net of tax) increase in “Other current liabilities,” $8.7 increase in “Other long-term liabilities”, $12.5 decrease in “Deferred income taxes,” and $19.8 decrease in “Accumulated other Comprehensive income.”to beginning retained earnings on January 1, 2008.
The accompanying balance sheets as of December 31, 20072008 and 2006, fully2007 reflect as an asset or liability the funded status of the Company’s sponsored domestic and foreign defined benefit pension plans as of their respective measurement dates. This note provides the disclosures required under SFAS 158 as of December 31, 2007 and 2006, and those otherwise required under SFAS 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” for all periods presented. The Company uses a September 30 measurement date for its most significant plans. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
A summary of the Company’s pension obligations and funded status as of December 31, 2008, 2007 2006 and 20052006 and changes during the years then ended, is as follows: | | | | 2007
| | 2006
| | 2005
| | | 2008
| | 2007
| | 2006
| | Change in Benefit Obligation | | | | | Benefit obligation, beginning of period | | $ | 241.6 | | | $ | 227.5 | | | $ | 192.2 | | | $ | 239.4 | | | $ | 241.6 | | | $ | 227.5 | | Service cost | | | 4.4 | | | | 7.1 | | | | 5.2 | | | | 2.2 | | | | 4.4 | | | | 7.1 | | Interest cost | | | 13.3 | | | | 12.3 | | | | 10.9 | | | | 13.1 | | | | 13.3 | | | | 12.3 | | Plan participants’ contributions | | | 2.2 | | | | 5.6 | | | | 6.2 | | | | .8 | | | | 2.2 | | | | 5.6 | | Actuarial (gains) losses | | | (6.6 | ) | | | — | | | | 25.9 | | | Actuarial losses (gains) | | | | 3.7 | | | | (6.6 | ) | | | — | | Benefits paid | | | (15.7 | ) | | | (12.8 | ) | | | (10.8 | ) | | | (19.0 | ) | | | (15.7 | ) | | | (12.8 | ) | Foreign currency exchange rate changes | | | 2.6 | | | | 3.2 | | | | (2.1 | ) | | | (9.1 | ) | | | 2.6 | | | | 3.2 | | Acquisitions | | | 10.1 | | | | — | | | | — | | | (Divestitures) acquisitions | | | | (4.4 | ) | | | 10.1 | | | | — | | Plan amendments and curtailments | | | (12.5 | ) | | | (1.3 | ) | | | — | | | | — | | | | (12.5 | ) | | | (1.3 | ) | | | |
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| Benefit obligation, end of period | | | 239.4 | | | | 241.6 | | | | 227.5 | | | | 226.7 | | | | 239.4 | | | | 241.6 | | Change in Plan Assets | | | | | Fair value of plan assets, beginning of period | | | 226.8 | | | | 207.1 | | | | 189.1 | | | | 263.0 | | | | 226.8 | | | | 207.1 | | Actual return on plan assets | | | 34.4 | | | | 22.8 | | | | 21.9 | | | Actual (loss) return on plan assets | | | | (35.7 | ) | | | 34.4 | | | | 22.8 | | Employer contributions | | | 2.6 | | | | 2.1 | | | | 1.8 | | | | 1.3 | | | | 2.6 | | | | 2.1 | | Plan participants’ contributions | | | 2.2 | | | | 5.6 | | | | 6.2 | | | | .8 | | | | 2.2 | | | | 5.6 | | Benefits paid | | | (15.7 | ) | | | (12.8 | ) | | | (10.8 | ) | | | (19.0 | ) | | | (15.7 | ) | | | (12.8 | ) | Acquisitions | | | 10.1 | | | | — | | | | — | | | (Divestitures) acquisitions | | | | (4.6 | ) | | | 10.1 | | | | — | | Foreign currency exchange rate changes | | | 2.6 | | | | 2.0 | | | | (1.1 | ) | | | (8.2 | ) | | | 2.6 | | | | 2.0 | | | | |
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| Fair value of plan assets, end of period | | | 263.0 | | | | 226.8 | | | | 207.1 | | | | 197.6 | | | | 263.0 | | | | 226.8 | | | | |
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| Plan Assets Over (Under) Benefit Obligations | | $ | 23.6 | | | $ | (14.8 | ) | | | (20.4 | ) | | Plan Assets (Under) Over Benefit Obligations | | | $ | (29.1 | ) | | $ | 23.6 | | | $ | (14.8 | ) | | | |
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| Unrecognized net actuarial losses | | | | 50.5 | | | Unrecognized prior service cost | | | | 2.0 | | | | | | |
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| | Net prepaid pension cost | | | $ | 32.1 | | | | | | |
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| | Funded status recognized in the Consolidated Balance Sheets as: | | | | Funded status recognized in the Consolidated Balance Sheets | | | | Other assets—sundry | | $ | 35.2 | | | $ | 11.0 | | | | $ | .5 | | | $ | 35.2 | | | $ | 11.0 | | Other current liabilities | | | (.6 | ) | | | (.6 | ) | | | | (.5 | ) | | | (.6 | ) | | | (.6 | ) | Other long-term liabilities | | | (11.0 | ) | | | (25.2 | ) | | | | (29.1 | ) | | | (11.0 | ) | | | (25.2 | ) | | | |
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| Total net funded status | | $ | 23.6 | | | $ | (14.8 | ) | | | $ | (29.1 | ) | | $ | 23.6 | | | $ | (14.8 | ) | | | |
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Following are the amounts included in Accumulated Other Comprehensive Incomeaccumulated other comprehensive income (net of tax) as of December 31, 20072008 and 20062007 that had not yet been recognized as a component of net periodic pension cost: | | | | 2007
| | 2006
| | | 2008
| | 2007
| | Net loss (before tax) | | $ | 4.7 | | | $ | 40.8 | | | $ | 62.1 | | | $ | 4.7 | | Net prior service cost (before tax) | | | 1.7 | | | | 1.2 | | | | 1.6 | | | | 1.7 | | Deferred income taxes | | | (2.1 | ) | | | (15.8 | ) | | | (23.4 | ) | | | (2.1 | ) | | | |
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| Accumulated other comprehensive income, net of tax | | $ | 4.3 | | | $ | 26.2 | | | | | |
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| | $ | 40.3 | | | $ | 4.3 | | | | | |
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Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
Other changes in Plan Assetsplan assets and Benefit Obligationsbenefit obligations recognized in Other Comprehensive Incomeother comprehensive income during the year ended December 31, 2007:2008: | Net actuarial gain | | $ | (35.6 | ) | | Prior service cost | | | .7 | | | Net actuarial loss | | | $ | 57.4 | | Amortization of net actuarial loss | | | (1.1 | ) | | | (.1 | ) | Amortization of prior service cost | | | (.1 | ) | | | (.2 | ) | Foreign exchange rate effects | | | .5 | | | Deferred income taxes | | | 13.7 | | | | (21.3 | ) | | | |
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| | | | $ | (21.9 | ) | | $ | 35.8 | | | | |
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Of the amounts in Accumulated Other Comprehensive Incomeaccumulated other comprehensive income as of December 31, 2007,2008, the portions expected to be recognized as components of net periodic pension cost in 20082009 are as follows: | | | | Net loss
| | $ | .2 | Net prior service cost
| | | .2 |
| | | | Net loss | | $ | 4.8 | Net prior service cost | | | .2 |
| | | | | | | | | | | | | | | | 2007
| | | 2006
| | | 2005
| | Components of Net Pension (Expense) Income for the years ended December 31, | | | | | | | | | | | | | Service cost | | $ | (4.4 | ) | | $ | (7.1 | ) | | $ | (5.2 | ) | Interest cost | | | (13.3 | ) | | | (12.3 | ) | | | (10.9 | ) | Expected return on plan assets | | | 18.1 | | | | 16.2 | | | | 14.8 | | Amortization of prior service cost | | | (.1 | ) | | | — | | | | — | | Recognized net actuarial loss | | | (1.1 | ) | | | (2.6 | ) | | | (1.0 | ) | | | |
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| Net pension expense | | $ | (.8 | ) | | $ | (5.8 | ) | | $ | (2.3 | ) | | | |
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| Weighted Average Assumptions: | | | | | | | | | | | | | Discount rate used in net pension costs | | | 5.6 | % | | | 5.5 | % | | | 5.5 | % | Discount rate used in benefit obligation | | | 6.0 | % | | | 5.6 | % | | | 5.5 | % | Expected return on plan assets | | | 7.8 | % | | | 7.9 | % | | | 7.9 | % | Rate of compensation increase | | | 4.1 | % | | | 4.1 | % | | | 4.1 | % |
Components of net pension income (expense) for the years ended December 31 were as follows: | | | | | | | | | | | | | | | | 2008
| | | 2007
| | | 2006
| | Service cost | | $ | (2.2 | ) | | $ | (4.4 | ) | | $ | (7.1 | ) | Interest cost | | | (13.1 | ) | | | (13.3 | ) | | | (12.3 | ) | Expected return on plan assets | | | 19.1 | | | | 18.1 | | | | 16.2 | | Settlement loss | | | (1.3 | ) | | | — | | | | — | | Amortization of prior service cost | | | (.2 | ) | | | (.1 | ) | | | — | | Recognized net actuarial loss | | | (.1 | ) | | | (1.1 | ) | | | (2.6 | ) | | | |
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| Net pension income (expense) | | $ | 2.2 | | | $ | (.8 | ) | | $ | (5.8 | ) | | | |
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| Weighted Average Assumptions: | | | | | | | | | | | | | Discount rate used in net pension costs | | | 6.0 | % | | | 5.6 | % | | | 5.5 | % | Discount rate used in benefit obligation | | | 6.0 | % | | | 6.0 | % | | | 5.6 | % | Expected return on plan assets | | | 7.9 | % | | | 7.8 | % | | | 7.9 | % | Rate of compensation increase | | | 4.1 | % | | | 4.1 | % | | | 4.1 | % |
The Company uses the average of the Citigroup Pension Liability IndexDiscount Curve rate and Merrill Lynch AA-AAA 10 yr.year Bond Index rate to determine the discount rate used for its significant pension plans (rounded to the nearest 25 basis points). The Citigroup IndexPension Discount Curve rate is a calculated rate using yearly spot rates matched against expected future benefit payments. The Merrill Lynch Index rate is based on the weighted average yield of a portfolio of high grade Corporate Bonds with an average duration approximating the plans’ projected benefit payments, adjusted for any callable bonds included in the portfolio. The discount rate used for our significant pension plans was 6.0% for 2008, 6.0% for 2007 and 5.75% for 2006 and 5.5% for 2005.2006. The discount rates used for the Company’s other, primarily foreign, plans are based on rates appropriate for the respective country and the plan obligations. The overall, expected long-term rate of return is based on each plan’s historical experience and the Company’s expectations of future returns based upon each plan’s investment holdings. On December 31, 2006, the Company made changes to the retirement plan covering non-union employees that meet the criteria of a curtailment as defined in SFAS No. 88, “Employer’s Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.” As such, the expected costs associated with the future service of participants in the plan were reduced, lowering the Projected Benefit Obligation in the plan by $11.7. This curtailment gain was offset against the plan’s previously existing unrecognized net actuarial loss in accordance with SFAS No. 88. Participants were moved to a defined contribution plan that incorporates a company match based upon the current age of the participant.participant at December 31, 2006. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
The accumulated benefit obligation for all defined benefit pension plans was $222.2, $234.6 $223.4 and $207.0$223.4 at December 31, 2008, 2007 2006 and 2005,2006, respectively. Those plans that have benefit obligations in excess of plan assets at December 31 are recapped below: | | | | 2007
| | 2006
| | 2005
| | 2008
| | 2007
| | 2006
| Aggregated plans with accumulated benefit obligations in excess of plan assets: | | | | | | | | | | | | | Projected benefit obligation | | $ | 35.7 | | $ | 77.1 | | $ | 74.0 | | $ | 191.6 | | $ | 35.7 | | $ | 77.1 | Accumulated benefit obligation | | | 34.9 | | | 73.3 | | | 71.5 | | | 189.4 | | | 34.9 | | | 73.3 | Fair value of plan assets | | | 25.2 | | | 57.6 | | | 52.3 | | | 162.3 | | | 25.2 | | | 57.6 | Aggregated plans with projected benefit obligations in excess of plan assets: | | | | | | | | | | | | | Projected benefit obligation | | | 71.2 | | | 210.4 | | | 123.7 | | | 194.2 | | | 71.2 | | | 210.4 | Fair value of plan assets | | | 59.5 | | | 184.6 | | | 115.0 | | | 164.4 | | | 59.5 | | | 184.6 |
Included in the above plans is a subsidiary’s unfunded supplemental executive retirement plan. The subsidiary owns insurance policies with cash surrender values of $2.3, $2.2 $2.1 and $2.0$2.1 at December 31, 2008, 2007 2006 and 2005,2006, respectively, for the participants in this non-qualified plan. These insurance policies are not included in the plan’s assets. Plan assets are invested in diversified portfolios of equity, debt and government securities. The aggregate allocation of these investments is as follows: | | | | 2007
| | 2006
| | 2005
| | | 2008
| | 2007
| | 2006
| | Asset Category | | | | | Equity securities | | 68 | % | | 71 | % | | 69 | % | | 43 | % | | 75 | % | | 77 | % | Debt securities | | 17 | | | 17 | | | 22 | | | 54 | | | 17 | | | 19 | | Other, including cash | | 15 | | | 12 | | | 9 | | | 3 | | | 8 | | | 4 | | | | |
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| Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | | |
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The Company’s investment policy and strategies are established with a long-term view in mind. The Company strives for a sufficiently diversified asset mix to minimize the risk of a material loss to the portfolio value due to the devaluation of any single investment. In determining the appropriate asset mix, the Company’s financial strength and ability to fund potential shortfalls that might result from poor investment performance are considered. ForApproximately 60% of the Company’s significant plans thehave a target allocation is 80%of 75% bonds and 25% equities with the remaining significant plans having a target allocation of 75% equities and 20%25% bonds. The Company expects to contribute $1.8$2.6 to its defined benefit pension plans in 2008.2009. Estimated benefit payments, expected over the next ten years are: 2008—$17.1; 2009—$15.0;14.8; 2010—$15.1; 2011—$15.2; 2011—$15.3; 2012—$15.515.2; 2013—$15.6 and 2013-2017—2014-2018—$82.3.82.0. Total expense from continuing operations for multiemployer plans and other defined contribution plans was $8.5, $9.8 and $4.8 in 2008, 2007 and $4.1 in 2007, 2006, and 2005, respectively. Contributions to union sponsored, defined benefit, multiemployer pension plans associated with continuing operations were less than $1.5$.1, $.1 and $.3 in 2008, 2007 and 2006, respectively. Contributions to these plans associated with discontinued operations were $.6, $1.0 and 2005.$1.0 in 2008, 2007 and 2006 respectively. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. While the Company has no present intention of withdrawing from any of these plans, nor has it been informed that there is any intention to terminate such plans, the Company does not believe there would be a material withdrawal liability in such event. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
N—Income Taxes The components of earnings from continuing operations before income taxes are as follows: | | | | | | | | | | | | | | | | Year ended December 31
| | | | | 2007
| | | 2006
| | | 2005
| | Domestic | | $ | 77.9 | | | $ | 272.9 | | | $ | 259.6 | | Foreign | | | 50.5 | | | | 61.5 | | | | 46.1 | | | | |
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| | | | $ | 128.4 | | | $ | 334.4 | | | $ | 305.7 | | | | |
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| | Income tax expense from continuing operations is comprised of the following components: | | | | | | | Year ended December 31
| | | | | 2007
| | | 2006
| | | 2005
| | Current | | | | | | | | | | | | | Federal | | $ | 61.2 | | | $ | 73.5 | | | $ | 92.4 | | State and local | | | 4.6 | | | | 5.2 | | | | 7.8 | | Foreign | | | 18.0 | | | | 16.1 | | | | 17.9 | | | | |
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| | | | | 83.8 | | | | 94.8 | | | | 118.1 | | | | | | Deferred | | | | | | | | | | | | | Federal | | | (17.8 | ) | | | 4.5 | | | | (20.4 | ) | State and local | | | (9.8 | ) | | | (1.1 | ) | | | (3.0 | ) | Foreign | | | 21.2 | | | | 0.6 | | | | (7.1 | ) | | | |
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| | | | | (6.4 | ) | | | 4.0 | | | | (30.5 | ) | | | |
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| | | | $ | 77.4 | | | $ | 98.8 | | | $ | 87.6 | | | | |
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| | Income tax expense from continuing operations, as a percentage of earnings before income taxes, differs from the statutory federal income tax rate as follows: | | | | | | | Year ended December 31
| | | | | 2007
| | | 2006
| | | 2005
| | Statutory federal income tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | Increases (decreases) in rate resulting from: | | | | | | | | | | | | | State taxes, net of federal benefit | | | .3 | | | | .4 | | | | 1.1 | | Worthless stock deduction | | | — | | | | (3.0 | ) | | | — | | Taxes on foreign earnings | | | (8.6 | ) | | | (.8 | ) | | | (1.9 | ) | Change in valuation allowance | | | 9.7 | | | | (1.5 | ) | | | (3.1 | ) | Goodwill impairment | | | 25.8 | | | | — | | | | .1 | | Permanent differences (other than goodwill impairment) | | | (1.2 | ) | | | (.7 | ) | | | (1.2 | ) | Other | | | (0.7 | ) | | | .2 | | | | (1.3 | ) | | | |
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| Effective tax rate | | | 60.3 | % | | | 29.6 | % | | | 28.7 | % | | | |
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| | | | | | | | | | | | | Year ended December 31
| | | | 2008
| | 2007
| | 2006
| Domestic | | $ | 113.9 | | $ | 91.4 | | $ | 274.2 | Foreign | | | 74.1 | | | 50.4 | | | 61.4 | | | |
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| | | | $ | 188.0 | | $ | 141.8 | | $ | 335.6 | | | |
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Income tax expense from continuing operations is comprised of the following components: | | | | | | | | | | | | | | | | Year ended December 31
| | | | | 2008
| | | 2007
| | | 2006
| | Current | | | | | | | | | | | | | Federal | | $ | 36.9 | | | $ | 65.7 | | | $ | 74.1 | | State and local | | | 3.5 | | | | 5.1 | | | | 5.3 | | Foreign | | | 21.8 | | | | 18.0 | | | | 16.1 | | | | |
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| | | | | 62.2 | | | | 88.8 | | | | 95.5 | | | | | | Deferred | | | | | | | | | | | | | Federal | | | 4.2 | | | | (18.3 | ) | | | 4.5 | | State and local | | | (4.1 | ) | | | (9.3 | ) | | | (1.1 | ) | Foreign | | | 2.8 | | | | 21.2 | | | | .6 | | | | |
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| | | | | 2.9 | | | | (6.4 | ) | | | 4.0 | | | | |
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| | | | $ | 65.1 | | | $ | 82.4 | | | $ | 99.5 | | | | |
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Income tax expense from continuing operations, as a percentage of earnings before income taxes, differs from the statutory federal income tax rate as follows: | | | | | | | | | | | | | Year ended December 31
| | | | | 2008
| | | 2007
| | | 2006
| | Statutory federal income tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % | Increases (decreases) in rate resulting from: | | | | | | | | | | State taxes, net of federal benefit | | (.4 | ) | | .5 | | | .4 | | Worthless stock deduction | | (3.5 | ) | | — | | | (2.9 | ) | Taxes on foreign earnings | | (2.2 | ) | | (7.6 | ) | | (.8 | ) | Change in valuation allowance | | 5.6 | | | 8.6 | | | (1.5 | ) | Goodwill impairment | | .6 | | | 23.3 | | | — | | Permanent differences (other than goodwill impairment) | | (.6 | ) | | (1.1 | ) | | (.7 | ) | Other | | .1 | | | (.6 | ) | | .1 | | | | |
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| Effective tax rate | | 34.6 | % | | 58.1 | % | | 29.6 | % | | | |
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During 2008, the Company realized a $7.8 tax benefit associated with the write-off of an acquired Company’s stock, which had a favorable impact on the tax rate. The Company also realized a tax benefit of approximately $11 primarily related to a worthless stock deduction in 2006. During 2007, $94.7 of the total goodwill impairment charged to continuing operations was nondeductible, which had an adverse impact on ourthe tax rate. The Company and its affiliates file tax returns in each jurisdiction where they are registered to do business. In the U.S. and many of the state jurisdictions, and in many foreign countries where the Company files tax returns, a statute of limitations period exists. After a statute period expires, the tax authorities may no longer assess additional income tax for the expired period. In addition, the Company is no longer eligible to file claims for refund for any tax that it may have overpaid. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
On January 1, 2007, the Company adopted the provisionsprovision of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). The resulting impact of the adoption was immaterial. The total amount of the Company’s unrecognized tax benefits at December 31, 2007,2008, is $34.8,$38.4, of which $18.7$23.6 would impact the Company’s effective tax rate, if recognized. A reconciliation of the beginning and ending balance of our gross unrecognized tax benefits for the years 2008 and 2007, exclusive of interest and penalties, is as follows: | Unrecognized tax benefits, January 1, 2007 | | $ | 25.5 | | | | | | | 2008
| | 2007
| | Unrecognized tax benefits, January 1 | | | $ | 29.6 | | | $ | 25.5 | | Gross increases—tax positions in prior periods | | | 1.3 | | | | 4.8 | | | | 1.3 | | Gross decreases—tax positions in prior periods | | | (2.5 | ) | | | (2.5 | ) | | | (2.5 | ) | Gross increases—current period tax positions | | | 6.7 | | | | 4.3 | | | | 6.7 | | Change due to exchange rate fluctuations | | | | (1.5 | ) | | | — | | Settlements | | | (.3 | ) | | | (.3 | ) | | | (.3 | ) | Lapse of statute of limitations | | | (1.1 | ) | | | (2.3 | ) | | | (1.1 | ) | | | |
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| Unrecognized tax benefits, December 31, 2007 | | $ | 29.6 | | | Unrecognized tax benefits, December 31 | | | $ | 32.1 | | | $ | 29.6 | | | | |
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The Company recognizes interest and penalties related to unrecognized tax benefits as part of income tax expense in the Consolidated StatementsStatement of Earnings, which is consistent with prior reporting periods. AsThe Company recognized expense of $1.5 and $.1 for interest and penalties, respectively for the year ended December 31, 2008 and $.4 and $.1 for interest and penalties, respectively for the year ended December 31, 2007. At December 31, 2008 the Company’s liability for interest and penalties was $5.3 and $1.0, respectively. At December 31, 2007, the Company had recorded aCompany’s liability of approximatelyfor interest and penalties was $4.2 and $1.0, for the payment of interest and penalties, respectively. As of December 31, 2007,2008, four tax years were subject to audit by the United States Internal Revenue Service (IRS), covering the years 2005 through 2008. Amended federal returns have also been filed for 2004 through 2007.with a refund of $3.0 expected. These return filings are subject to review by the IRS, with the largest issue related to a research and development credit. In 2006, the IRS examination for the years 2002 and 2003 was concluded. A final report was issued, and the net refund of approximately $11 plus interest, was approvedreceived in 2007. The largest issue pertained to a refund claim the Companywe made for a worthless stock deduction. The resolution of this item was reflected in 2006 as a reduction in the Company’s overall tax rate. Additionally, fivesix tax years were undergoing (or subject to) audit by the Canada Revenue Agency, covering the periods 2003 through 2007.2008. Examinations are underway for 2003-2006,2003 through 2006, which are at various stages of completion, but to date we arethe Company is not aware of any material adjustments. Lastly, various state and other foreign jurisdiction tax years remain open to examination as well, though the Company believes assessments (if any) would be immaterial to its consolidated financial statements. The Company is not aware of any changes that would materially increase or decrease the total amount of unrecognized tax benefits within the next 12 months. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The major temporary differences that give rise to deferred tax assets or liabilities are as follows: | | | | December 31
| | | December 31
| | | | | 2007
| | 2006
| | | 2008
| | 2007
| | | | | Assets
| | Liabilities
| | Assets
| | Liabilities
| | | Assets
| | Liabilities
| | Assets
| | Liabilities
| | Property, plant and equipment | | $ | 20.9 | | | $ | (71.1 | ) | | $ | 8.7 | | | $ | (84.6 | ) | | $ | 34.5 | | | $ | (79.0 | ) | | $ | 20.9 | | | $ | (71.1 | ) | Inventories | | | 2.9 | | | | (24.4 | ) | | | 3.5 | | | | (23.0 | ) | | | 3.0 | | | | (20.4 | ) | | | 2.9 | | | | (24.4 | ) | Accrued expenses | | | 115.2 | | | | (0.2 | ) | | | 109.6 | | | | — | | | | 115.5 | | | | (.3 | ) | | | 115.2 | | | | (.2 | ) | Net operating loss and tax credit carryforwards | | | 70.1 | | | | — | | | | 75.1 | | | | — | | | | 67.7 | | | | — | | | | 70.1 | | | | — | | Pension cost | | | 9.2 | | | | (18.0 | ) | | | 11.6 | | | | (6.1 | ) | | | 12.7 | | | | (1.9 | ) | | | 9.2 | | | | (18.0 | ) | Intangible assets | | | 2.5 | | | | (85.0 | ) | | | 2.3 | | | | (96.8 | ) | | | 4.3 | | | | (87.1 | ) | | | 2.5 | | | | (85.0 | ) | Subsidiary stock basis | | | 39.8 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 39.8 | | | | — | | Uncertain tax positions | | | 16.1 | | | | — | | | | — | | | | — | | | | 14.8 | | | | — | | | | 16.1 | | | | — | | Other | | | 16.1 | | | | (18.5 | ) | | | 13.1 | | | | (13.6 | ) | | | 19.7 | | | | (18.3 | ) | | | 16.1 | | | | (18.5 | ) | | | |
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| Gross deferred tax assets (liabilities) | | | 292.8 | | | | (217.2 | ) | | | 223.9 | | | | (224.1 | ) | | | 272.2 | | | | (207.0 | ) | | | 292.8 | | | | (217.2 | ) | Valuation allowance | | | (55.2 | ) | | | — | | | | (37.3 | ) | | | — | | | | (46.3 | ) | | | — | | | | (55.2 | ) | | | — | | | | |
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| Total deferred taxes | | $ | 237.6 | | | $ | (217.2 | ) | | $ | 186.6 | | | $ | (224.1 | ) | | $ | 225.9 | | | $ | (207.0 | ) | | $ | 237.6 | | | $ | (217.2 | ) | | | |
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| Net deferred tax asset (liability) | | | $ | 20.4 | | | $ | (37.5 | ) | | Net deferred tax asset | | | | $ | 18.9 | | | $ | 20.4 | | | | | |
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The valuation allowance primarily relates to net operating loss and tax credit carryforwards for which utilization is uncertain. Cumulative tax losses in certain state and foreign jurisdictions during recent years, and limited carryforward periods in certain jurisdictions, were factors considered in determining the valuation allowance. Generally, no significant amountamounts of carryforwards expire in any one year. However, $15.7$21.3 of the carryforwards will expire in 2016,2015, if not used beforehand. The Company recognized net excess tax (costs) benefits of approximately ($.3), $1.4 and $2.0 in 2008, 2007 and $2.1 in 2007, 2006, and 2005, respectively, related to the exercise of employee stock options, which have been recorded as increases to additional contributed capital. Effective January 1, 2006, the Company adopted SFAS 123R. Of the $1.4($.3) net excess tax benefitcost recorded in 2007,2008, the entire amount represents a reduction in overall windfall tax benefit. In 2005, the Company completed a foreign entity restructuring and cash repatriation transaction that resulted in the recognition of a deferred tax asset related to foreign losses and foreign taxes. Overall, the transaction generated a gross Foreign Tax Credit (FTC) benefit of $18.2 which was reduced by an $8 valuation allowance. The valuation allowance was recorded due to significant uncertainty regarding the Company’s ability to realize all of the FTC benefit. Due to subsequent changes in facts and circumstances, a $4 reduction in the valuation allowance in both 20062008 and 2007, was made for this item. In 2007, a valuation allowanceallowances of approximately $11.2 and $16.7, was providedrespectively, were recognized for certain Canadian net operating losses.losses, offset by changes in valuation allowances related to businesses sold during 2008. The establishment of this allowanceallowances for Canadian net operating losses was required due to uncertainties surrounding the ultimate realizability of these deferred tax assets, and adversely impacted our tax rate for the year.assets.
Deferred income taxes and withholding taxes have been provided on earnings of the Company’s foreign subsidiaries to the extent it is anticipated that the earnings will be remitted in the future as dividends. The tax effect of most distributions would be significantly offset by available foreign tax credits. Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
Deferred income taxes and withholding taxes have not been provided on undistributed earnings which management has deemed to be permanently reinvested. The cumulative undistributed earnings as of December 31, 2007,2008, which the Company has deemed to be permanently reinvested, are approximately $264.1.$281.5. If such earnings were distributed, the resulting incremental taxes would be approximately $44.6$58.3 based on present income tax laws, which are subject to change. Deferred tax assets and (liabilities) included in the consolidated balance sheets are as follows: | | | | December 31
| | | December 31
| | | | | 2007
| | 2006
| | | 2008
| | 2007
| | Other current assets | | $ | 55.1 | | | $ | 22.0 | | | $ | 27.2 | | | $ | 55.1 | | Sundry | | | 9.4 | | | | 11.3 | | | | 10.6 | | | | 9.4 | | Other current liabilities | | | (1.8 | ) | | | (3.7 | ) | | | (1.7 | ) | | | (1.8 | ) | Deferred income taxes | | | (42.3 | ) | | | (67.1 | ) | | | (17.2 | ) | | | (42.3 | ) | | | |
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| | | | $ | 20.4 | | | $ | (37.5 | ) | | $ | 18.9 | | | $ | 20.4 | | | | |
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O—Segment Information Reportable segments are primarily based upon the Company’s management organizational structure. This structure is generally focused on broad end-user markets for the Company’s diversified products. Residential Furnishings derives its revenues from components for bedding, furniture and other furnishings, as well as related consumer products. Commercial Fixturing & Components derives its revenues from retail store fixtures, displays and components for office and institutional furnishings. Industrial Materials derives its revenues from drawn steel wire, specialty wire products and welded steel tubing sold to trade customers as well as other Leggett segments. Specialized Products derives its revenues from automotive seating components, specialized machinery and equipment, and van interiors. The accounting principles used in the preparation of the segment information are the same as used for the consolidated financial statements, except that the segment assets and income reflect the FIFO basis of accounting for inventory. Certain inventories are accounted for using the LIFO basis in the consolidated financial statements. The Company evaluates performance based on earnings from operations before interest and income taxes (EBIT). Intersegment sales are made primarily at prices that approximate market-based selling prices. Centrally incurred costs are allocated to the segments based on estimates of services used by the segment. Certain general and administrative costs and miscellaneous corporate income and expense of the Company are allocated to the segments based on sales and EBIT. Except for assets held for sale, asset information for the segments includes only inventory, trade receivables, net property, plant and equipment and unamortized purchased intangibles. These segment assets are reflected in the segment information at their estimated average for the year. Acquired companies’ long-lived assets as disclosed include property, plant and equipment, goodwill and other intangibles, and long-term assets. Centrally incurredallocated corporate costs allocated general and administrative costs and miscellaneous corporate income and expense include depreciation and other costs and income related to assets that are not allocated or otherwise included in the segment assets. The Company’s new role-based portfolio management as discussed in Note B does not impact its segment reporting structure under SFAS 131, which includes the four reportable segments described above. These segments are comprised of 10 business groups (which are also reporting units for goodwill impairment testing purposes). These business groups are currently comprised of 20 business units and over 160 production locations. As part of the Company’s 2007 Strategic Plan, it adopted a role-based portfolio management approach and assigned different roles (Grow, Core, Fix or Divest) to each of its 20 business units based upon competitive advantages, strategic position and financial health. Historically, the Company established goals and plans for the business units uniformly, with each business unit expected to grow revenue significantly. The new role-based approach changes the expectations for the business units based on their assigned roles. The Company’s reportable segments are based upon management organizational structure, including senior operating vice-presidents for each reportable segment. The Company’s management structure has not changed as a result of the role-based approach. The financial information regularly reviewed and used by the chief operating decision-maker and the Board of Directors to evaluate segment performance and allocate total resources has not changed. In addition, the management incentive compensation for segment, group and unit managers is based upon budget achievement and return on capital employed of operations under their direct control as reported through the existing segment structure. The new role-based approach is a supplemental tool used by management to ensure capital (not total resources) is efficiently allocated to the business units within the reportable segment structure. A summary of segment results for the years ended December 31, 2008, 2007 2006 and 20052006 are shown in the following tables. Amounts for 20052007 and 2006 have been retrospectively adjusted (i) to reflect discontinued operations as discussed in Note B, and (ii) an organizational change, effective June 1, 2007, that moved a few small formed wire operations from Commercial Fixturing & Components to Industrial Materials. Leggett & Platt, IncorporatedB.
| | | | | | | | | | | | | | | | | Year ended December 31
| | | | | External
Sales
| | Inter-
Segment
Sales
| | Total
Sales
| | EBIT From
Continuing
Operations
| | 2008 | | | | | | | | | | | | | | Residential Furnishings | | $ | 2,102.3 | | $ | 17.5 | | $ | 2,119.8 | | $ | 150.7 | | Commercial Fixturing & Components | | | 696.9 | | | 14.4 | | | 711.3 | | | 13.8 | | Industrial Materials | | | 658.2 | | | 308.0 | | | 966.2 | | | 95.5 | | Specialized Products | | | 618.7 | | | 63.0 | | | 681.7 | | | 40.7 | | Intersegment eliminations | | | | | | | | | | | | (11.1 | ) | Adjustment to LIFO method | | | | | | | | | | | | (61.9 | ) | | | |
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| | | | $ | 4,076.1 | | $ | 402.9 | | $ | 4,479.0 | | $ | 227.7 | | | | |
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| 2007 | | | | | | | | | | | | | | Residential Furnishings | | $ | 2,238.4 | | $ | 15.6 | | $ | 2,254.0 | | $ | 174.3 | | Commercial Fixturing & Components | | | 819.8 | | | 17.6 | | | 837.4 | | | (104.4 | ) | Industrial Materials | | | 523.1 | | | 252.6 | | | 775.7 | | | 54.6 | | Specialized Products | | | 668.7 | | | 46.3 | | | 715.0 | | | 64.6 | | Intersegment eliminations | | | | | | | | | | | | 0.7 | | Adjustment to LIFO method | | | | | | | | | | | | 1.1 | | | | |
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| | | | $ | 4,250.0 | | $ | 332.1 | | $ | 4,582.1 | | $ | 190.9 | | | | |
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| 2006 | | | | | | | | | | | | | | Residential Furnishings | | $ | 2,336.3 | | $ | 22.1 | | $ | 2,358.4 | | $ | 230.6 | | Commercial Fixturing & Components | | | 850.5 | | | 10.4 | | | 860.9 | | | 59.7 | | Industrial Materials | | | 504.4 | | | 279.1 | | | 783.5 | | | 55.3 | | Specialized Products | | | 575.7 | | | 45.0 | | | 620.7 | | | 43.4 | | Intersegment eliminations | | | | | | | | | | | | 1.8 | | Adjustment to LIFO method | | | | | | | | | | | | (7.4 | ) | | | |
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| | | | $ | 4,266.9 | | $ | 356.6 | | $ | 4,623.5 | | $ | 383.4 | | | | |
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Notes to Consolidated Financial Statements—(Continued)
Beginning in 2008, management changed the measure of segment assets used in evaluating segment performance. Return measures now include working capital (all current assets and current liabilities) plus net property, plant and equipment. The previous measure included inventory, trade receivables, net property, plant and equipment and unamortized purchased intangibles. Segment assets for all years are reflected at their estimated average for the year. Acquired companies’ long-lived assets as disclosed below include property, plant and equipment and long-term assets. | | | | | | | | | | | | | | | | | Year ended December 31
| | | | Assets
| | | Additions
to
Property,
Plant and
Equipment
| | Acquired
Companies’
Long-Lived
Assets
| | Depreciation
And
Amortization
| 2008 | | | | | | | | | | | | | | Residential Furnishings | | $ | 801.9 | | | $ | 66.3 | | $ | 4.5 | | $ | 61.4 | Commercial Fixturing & Components | | | 301.5 | | | | 11.0 | | | 3.2 | | | 17.0 | Industrial Materials | | | 306.1 | | | | 11.5 | | | .1 | | | 17.2 | Specialized Products | | | 265.0 | | | | 14.4 | | | — | | | 32.5 | Average current liabilities included in segment numbers above | | | 348.1 | | | | — | | | — | | | — | Assets held for sale | | | 61.2 | | | | 6.5 | | | — | | | .2 | Unallocated assets** | | | 1,310.3 | | | | 8.6 | | | — | | | 12.1 | Difference between average assets and year-end balance sheet | | | (232.2 | ) | | | — | | | — | | | — | | | |
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| | | | $ | 3,161.9 | | | $ | 118.3 | | $ | 7.8 | | $ | 140.4 | | | |
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| 2007 | | | | | | | | | | | | | | Residential Furnishings | | $ | 801.9 | | | $ | 59.2 | | $ | 2.4 | | $ | 61.9 | Commercial Fixturing & Components | | | 340.3 | | | | 14.7 | | | 29.3 | | | 18.3 | Industrial Materials | | | 276.8 | | | | 10.0 | | | 63.8 | | | 17.1 | Specialized Products | | | 275.5 | | | | 28.8 | | | 41.7 | | | 32.9 | Average current liabilities included in segment numbers above | | | 318.3 | | | | — | | | — | | | — | Assets held for sale | | | 554.5 | | | | 27.1 | | | — | | | 40.1 | Other* | | | 17.8 | | | | — | | | — | | | — | Unallocated assets** | | | 1,559.6 | | | | 9.0 | | | — | | | 13.1 | Difference between average assets and year-end balance sheet | | | (72.2 | ) | | | — | | | — | | | — | | | |
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| | | | $ | 4,072.5 | | | $ | 148.8 | | $ | 137.2 | | $ | 183.4 | | | |
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| 2006 | | | | | | | | | | | | | | Residential Furnishings | | $ | 808.9 | | | $ | 33.5 | | $ | 96.5 | | $ | 60.6 | Commercial Fixturing & Components | | | 336.7 | | | | 20.8 | | | — | | | 18.4 | Industrial Materials | | | 278.5 | | | | 7.4 | | | — | | | 15.7 | Specialized Products | | | 266.0 | | | | 29.8 | | | — | | | 28.1 | Average current liabilities included in segment numbers above | | | 326.1 | | | | — | | | — | | | — | Other* | | | 659.8 | | | | 54.8 | | | — | | | 40.6 | Unallocated assets** | | | 1,601.7 | | | | 20.0 | | | — | | | 12.0 | Difference between average assets and year-end balance sheet | | | (12.4 | ) | | | — | | | — | | | — | | | |
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| | | | $ | 4,265.3 | | | $ | 166.3 | | $ | 96.5 | | $ | 175.4 | | | |
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| * | Businesses sold or classified as held for sale during the years ended December 31, 2008 and 2007. |
| ** | Primarily goodwill, other intangibles, cash and long-term notes receivable. |
The
As discussed above, segment assets for December 31, 2007 and 2006 have been retrospectively adjusted, and the tables below summarize the impact of the organizational change on reported results for the year ended December 31, 2006 was to move $15.6 of external sales and $(6.2) of EBIT from the Commercial Fixturing & Components segment to the Industrial Materials segment. In addition, for the year ended December 31, 2006, intersegment sales for Commercial Fixturing & Components increased $3.6, resulting in a net reduction in total Commercial Fixturing & Components sales of $12.0. Also, intersegment sales for Industrial Materials increased $17.1, resulting in a net increase of $32.7 in total Industrial Materials sales.change. The impact of the organizational change on reported results for the year ended December 31, 2005 was to move $27.3 of external sales and $.1 of EBIT from the Commercial Fixturing & Components segment to the Industrial Materials segment. In addition, for the year ended December 31, 2005, intersegment sales for Commercial Fixturing & Components increased $3.7, resulting in a net reduction in total Commercial Fixturing & Components sales of $23.6. Also, intersegment sales for Industrial Materials increased $14.6, resulting in a net increase of $41.9 in total Industrial Materials sales.
| | | | | | | | | | | | | | | | | | | | December 31,
2007
segment
assets as
previously
reported
| | | Less
average
gross
goodwill
and other
intangibles
| | | Net average
other
assets and
liabilities
included in
return
measures
| | | December 31,
2007
segment
assets (as
adjusted)
| | Residential Furnishings | | $ | 1,493.6 | | | $ | (573.4 | ) | | $ | (118.3 | ) | | $ | 801.9 | | Commercial Fixturing & Components | | | 703.8 | | | | (318.1 | ) | | | (45.4 | ) | | | 340.3 | | Industrial Materials | | | 376.4 | | | | (75.2 | ) | | | (24.4 | ) | | | 276.8 | | Specialized Products | | | 676.7 | | | | (339.2 | ) | | | (62.0 | ) | | | 275.5 | | Average current liabilities included in revised segment assets | | | — | | | | — | | | | 318.3 | | | | 318.3 | | Assets held for sale | | | 554.5 | | | | — | | | | — | | | | 554.5 | | Other* | | | — | | | | — | | | | 17.8 | | | | 17.8 | | Unallocated assets** | | | 410.5 | | | | 1,318.2 | | | | (169.1 | ) | | | 1,559.6 | | Difference between average assets and year-end balance sheet | | | (143.0 | ) | | | (12.3 | ) | | | 83.1 | | | | (72.2 | ) | | | |
|
|
| |
|
|
| |
|
|
| |
|
|
| | | | $ | 4,072.5 | | | $ | — | | | $ | — | | | $ | 4,072.5 | | | | |
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Summarized financial information concerning the Company’s reportable segments is shown in the following tables:
| | | | | | | | | | | | | | | | | Year ended December 31
| | | | | External
Sales
| | Inter-
Segment
Sales
| | Total
Sales
| | EBIT From
Continuing
Operations
| | 2007 | | | | | | | | | | | | | | Residential Furnishings | | $ | 2,294.8 | | $ | 15.6 | | $ | 2,310.4 | | $ | 160.9 | | Commercial Fixturing & Components | | | 819.8 | | | 17.6 | | | 837.4 | | | (104.4 | ) | Industrial Materials | | | 523.1 | | | 252.6 | | | 775.7 | | | 54.6 | | Specialized Products | | | 668.7 | | | 46.3 | | | 715.0 | | | 64.6 | | Intersegment eliminations | | | | | | | | | | | | 0.7 | | Adjustment to LIFO method | | | | | | | | | | | | 1.1 | | | | |
|
| |
|
| |
|
| |
|
|
| | | | $ | 4,306.4 | | $ | 332.1 | | $ | 4,638.5 | | $ | 177.5 | | | | |
|
| |
|
| |
|
| |
|
|
| 2006 | | | | | | | | | | | | | | Residential Furnishings | | $ | 2,402.4 | | $ | 22.1 | | $ | 2,424.5 | | $ | 229.4 | | Commercial Fixturing & Components | | | 850.5 | | | 10.4 | | | 860.9 | | | 59.7 | | Industrial Materials | | | 504.4 | | | 279.1 | | | 783.5 | | | 55.3 | | Specialized Products | | | 575.7 | | | 45.0 | | | 620.7 | | | 43.4 | | Intersegment eliminations | | | | | | | | | | | | 1.8 | | Adjustment to LIFO method | | | | | | | | | | | | (7.4 | ) | | | |
|
| |
|
| |
|
| |
|
|
| | | | $ | 4,333.0 | | $ | 356.6 | | $ | 4,689.6 | | $ | 382.2 | | | | |
|
| |
|
| |
|
| |
|
|
| 2005 | | | | | | | | | | | | | | Residential Furnishings | | $ | 2,275.1 | | $ | 22.9 | | $ | 2,298.0 | | $ | 157.9 | | Commercial Fixturing & Components | | | 870.3 | | | 15.3 | | | 885.6 | | | 34.0 | | Industrial Materials | | | 560.7 | | | 325.0 | | | 885.7 | | | 103.3 | | Specialized Products | | | 551.4 | | | 58.7 | | | 610.1 | | | 31.2 | | Intersegment eliminations | | | | | | | | | | | | (5.5 | ) | Adjustment to LIFO method | | | | | | | | | | | | 23.9 | | | | |
|
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|
| | | | $ | 4,257.5 | | $ | 421.9 | | $ | 4,679.4 | | $ | 344.8 | | | | |
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|
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
| | | | Year ended December 31
| | December 31,
2006
segment
assets as
previously
reported
| | Less
average
gross
goodwill
and other
intangibles
| | Net average
other
assets and
liabilities
included in
return
measures
| | December 31,
2006
segment
assets (as
adjusted)
| | | | | Assets
| | Additions
to
Property,
Plant and
Equipment
| | Acquired
Companies’
Long-Lived
Assets
| | Depreciation
And
Amortization
| | 2007 | | | | | | | | Residential Furnishings | | $ | 1,493.6 | | | $ | 59.5 | | $ | 2.4 | | $ | 63.4 | | $ | 1,442.9 | | $ | (505.8 | ) | | $ | (128.2 | ) | | $ | 808.9 | | Commercial Fixturing & Components | | | 703.8 | | | | 14.7 | | | 29.3 | | | 18.4 | | | 729.9 | | | (344.7 | ) | | | (48.5 | ) | | | 336.7 | | Industrial Materials | | | 376.4 | | | | 10.0 | | | 63.8 | | | 17.1 | | | 343.7 | | | (48.0 | ) | | | (17.2 | ) | | | 278.5 | | Specialized Products | | | 676.7 | | | | 28.8 | | | 41.7 | | | 32.9 | | | 621.4 | | | (287.6 | ) | | | (67.8 | ) | | | 266.0 | | Assets held for sale | | | 554.5 | | | | 26.8 | | | — | | | 38.5 | | Unallocated assets | | | 410.5 | | | | 9.0 | | | — | | | 13.1 | | Adjustment to year-end vs. average assets | | | (143.0 | ) | | | | | | | Average current liabilities included in revised segment assets | | | | — | | | — | | | | 326.1 | | | | 326.1 | | Other* | | | | 794.6 | | | (189.5 | ) | | | 54.7 | | | | 659.8 | | Unallocated assets** | | | | 275.4 | | | 1,498.6 | | | | (172.3 | ) | | | 1,601.7 | | Difference between average assets and year-end balance sheet | | | | 57.4 | | | (123.0 | ) | | | 53.2 | | | | (12.4 | ) | | | |
|
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|
| | | | $ | 4,072.5 | | | $ | 148.8 | | $ | 137.2 | | $ | 183.4 | | $ | 4,265.3 | | $ | — | | | $ | — | | | $ | 4,265.3 | | | | |
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|
| 2006 | | | | | | | | Residential Furnishings | | $ | 1,442.9 | | | $ | 34.3 | | $ | 96.5 | | $ | 62.0 | | Commercial Fixturing & Components | | | 729.9 | | | | 20.8 | | | — | | | 18.3 | | Industrial Materials | | | 343.7 | | | | 2.7 | | | — | | | 15.8 | | Specialized Products | | | 621.4 | | | | 34.5 | | | — | | | 28.1 | | Other* | | | 794.6 | | | | 54.0 | | | — | | | 39.2 | | Unallocated assets | | | 275.4 | | | | 20.0 | | | — | | | 12.0 | | Adjustment to year-end vs. average assets | | | 57.4 | | | | | | | | | | |
|
|
| |
|
| |
|
| |
|
| | | | | $ | 4,265.3 | | | $ | 166.3 | | $ | 96.5 | | $ | 175.4 | | | | |
|
|
| |
|
| |
|
| |
|
| | 2005 | | | | | | | | Residential Furnishings | | $ | 1,343.4 | | | $ | 57.6 | | $ | 81.0 | | $ | 66.7 | | Commercial Fixturing & Components | | | 739.4 | | | | 10.7 | | | 15.5 | | | 16.4 | | Industrial Materials | | | 376.4 | | | | 15.7 | | | — | | | 15.7 | | Specialized Products | | | 576.5 | | | | 22.8 | | | 60.5 | | | 24.7 | | Other* | | | 694.2 | | | | 46.9 | | | 34.1 | | | 37.1 | | Unallocated assets | | | 238.7 | | | | 10.5 | | | — | | | 10.5 | | Adjustment to year-end vs. average assets | | | 103.8 | | | | | | | | | | |
|
|
| |
|
| |
|
| |
|
| | | | | $ | 4,072.4 | | | $ | 164.2 | | $ | 191.1 | | $ | 171.1 | | | | |
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| |
| * | Businesses sold or classified as held for sale during the year ended December 31, 2008 and 2007. |
| ** | Primarily cash, other current assets, and long-term notes receivable. |
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
Revenues from external customers, by product line, are as follows: | | | | | | | | | | | | | Year Ended December 31
| | | | 2007
| | 2006
| | 2005
| Residential Furnishings | | | | | | | | | | Bedding components | | $ | 806.6 | | $ | 813.6 | | $ | 870.2 | Home furniture & consumer products | | | 641.7 | | | 667.7 | | | 678.3 | Fabric, foam & fiber | | | 846.5 | | | 921.1 | | | 726.6 | | | |
|
| |
|
| |
|
| | | | | 2,294.8 | | | 2,402.4 | | | 2,275.1 | Commercial Fixturing & Components | | | | | | | | | | Fixtures & displays | | | 593.1 | | | 613.0 | | | 648.5 | Office furniture components | | | 226.7 | | | 237.5 | | | 221.8 | | | |
|
| |
|
| |
|
| | | | | 819.8 | | | 850.5 | | | 870.3 | Industrial Materials | | | | | | | | | | Wire & wire products | | | 419.0 | | | 391.2 | | | 431.7 | Steel tubing | | | 104.1 | | | 113.2 | | | 129.0 | | | |
|
| |
|
| |
|
| | | | | 523.1 | | | 504.4 | | | 560.7 | Specialized Products | | | | | | | | | | Automotive products | | | 366.5 | | | 332.6 | | | 348.1 | Commercial vehicle products | | | 176.7 | | | 118.3 | | | 95.4 | Specialized machinery | | | 125.5 | | | 124.8 | | | 107.9 | | | |
|
| |
|
| |
|
| | | | | 668.7 | | | 575.7 | | | 551.4 | | | |
|
| |
|
| |
|
| | | | $ | 4,306.4 | | $ | 4,333.0 | | $ | 4,257.5 | | | |
|
| |
|
| |
|
|
| | | | | | | | | | | | | Year Ended December 31
| | | | 2008
| | 2007
| | 2006
| Residential Furnishings | | | | | | | | | | Bedding group | | $ | 829.9 | | $ | 806.6 | | $ | 813.6 | Furniture group | | | 615.6 | | | 641.7 | | | 667.7 | Fabric & carpet underlay group | | | 656.8 | | | 790.1 | | | 855.0 | | | |
|
| |
|
| |
|
| | | | | 2,102.3 | | | 2,238.4 | | | 2,336.3 | Commercial Fixturing & Components | | | | | | | | | | Fixture & display group | | | 477.7 | | | 593.1 | | | 613.0 | Office furniture components group | | | 219.2 | | | 226.7 | | | 237.5 | | | |
|
| |
|
| |
|
| | | | | 696.9 | | | 819.8 | | | 850.5 | Industrial Materials | | | | | | | | | | Wire group | | | 555.8 | | | 419.0 | | | 391.2 | Tubing group | | | 102.4 | | | 104.1 | | | 113.2 | | | |
|
| |
|
| |
|
| | | | | 658.2 | | | 523.1 | | | 504.4 | Specialized Products | | | | | | | | | | Automotive group | | | 339.0 | | | 366.5 | | | 332.6 | Commercial vehicle products group | | | 150.6 | | | 176.7 | | | 118.3 | Machinery group | | | 129.1 | | | 125.5 | | | 124.8 | | | |
|
| |
|
| |
|
| | | | | 618.7 | | | 668.7 | | | 575.7 | | | |
|
| |
|
| |
|
| | | | $ | 4,076.1 | | $ | 4,250.0 | | $ | 4,266.9 | | | |
|
| |
|
| |
|
|
The Company’s operations outside of the United States are principally in Canada, Europe, Mexico and China. The geographic information that follows is based on the area of manufacture. | | | | Year Ended December 31
| | Year Ended December 31
| | | | 2007
| | 2006
| | 2005
| | 2008
| | 2007
| | 2006
| External sales | | | | | | | | | | | | | United States | | $ | 3,201.1 | | $ | 3,320.6 | | $ | 3,277.3 | | $ | 3,025.4 | | $ | 3,144.7 | | $ | 3,254.5 | Europe | | | | 409.0 | | | 402.0 | | | 353.7 | China | | | | 267.2 | | | 224.0 | | | 157.3 | Canada | | | 337.4 | | | 373.3 | | | 391.8 | | | 247.4 | | | 337.4 | | | 373.3 | Europe | | | 402.0 | | | 353.7 | | | 373.9 | | Mexico | | | 79.8 | | | 75.3 | | | 80.7 | | | 75.7 | | | 79.8 | | | 75.3 | China | | | 224.0 | | | 157.3 | | | 94.6 | | Other | | | 62.1 | | | 52.8 | | | 39.2 | | | 51.4 | | | 62.1 | | | 52.8 | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | $ | 4,306.4 | | $ | 4,333.0 | | $ | 4,257.5 | | $ | 4,076.1 | | $ | 4,250.0 | | $ | 4,266.9 | | | |
|
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|
| Long-lived assets | | | | | | | | | | | | | United States | | $ | 1,516.4 | | $ | 1,727.3 | | $ | 1,694.9 | | $ | 1,296.5 | | $ | 1,516.4 | | $ | 1,727.3 | Europe | | | | 224.8 | | | 251.8 | | | 225.8 | China | | | | 98.8 | | | 92.3 | | | 51.3 | Canada | | | 233.6 | | | 226.5 | | | 238.8 | | | 176.4 | | | 233.6 | | | 226.5 | Europe | | | 251.8 | | | 225.8 | | | 207.2 | | Mexico | | | 94.8 | | | 92.1 | | | 84.8 | | | 27.5 | | | 94.8 | | | 92.1 | China | | | 92.3 | | | 51.3 | | | 46.3 | | Other | | | 49.2 | | | 48.2 | | | 37.9 | | | 31.1 | | | 49.2 | | | 48.2 | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | $ | 2,238.1 | | $ | 2,371.2 | | $ | 2,309.9 | | $ | 1,855.1 | | $ | 2,238.1 | | $ | 2,371.2 | | | |
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Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
P—Contingencies The Company is involved in various legal proceedings including matters which involve claims against the Company under employment, intellectual property, product liability, environmental and other laws. When it appears probable in management’s judgment that the Company will incur monetary damages or other costs in connection with claims and proceedings, and the costs can be reasonably estimated, appropriate liabilities are recorded in the financial statements and charges are made against earnings. No claim or proceeding has resulted in a material charge against earnings, nor are the total liabilities recorded material to the Company’s financial position. Except as discussed below, management believes the possibility of a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows from claims and proceedings is remote. The Company has been named as one of numerous defendants in several cases consolidated as Gray v. Derderian, Case No. 1:04-CV-312-L, U.S.D.C. R.I. This litigation resulted from a nightclub fire in West Warwick, Rhode Island involving multiple deaths and injuries. Along with other foam manufacturing defendants, the Company is alleged to have manufactured and sold bulk polyurethane foam to a foam fabricator in Rhode Island, who in turn, is alleged to have fabricated and sold foam sheets to the nightclub. The foam was among other materials alleged to have caught fire when pyrotechnics were ignited inside the nightclub. The plaintiffs are seeking monetary damages in an unspecified amount. The litigation is in its early stages. We believeCompany believes it did not manufacture the Companyfoam subject to the lawsuit and that it has raised valid defenses to the claims. We intend to continue vigorously defending these claims. The Company cannot reasonably estimate the possible loss or range of loss that may arise from this litigation. However,Nevertheless, with the Company’s consent, the Company’s primary insurance coverages (includingcarrier reached a tentative settlement with counsel for all plaintiffs on April 29, 2008. If the settlement is approved by the court, the Company will pay a $2 million self-retention amount) are sufficientself-insured retention and the remainder of the $18.2 settlement is the responsibility of the insurance carrier. The settlement is subject to satisfycontingencies, including approval by the latest settlement demand.court. Management does not believe the settlement or the outcome will have a material effect on the Company’s financial condition, operating cash flows or results of operation.operations. CountervailingOn February 5, 2009, a shareholder derivative complaint was filed by the New England Carpenters Pension Fund, which represented that it owns 3,000 shares of Leggett stock, in the Circuit Court of Jasper County, Missouri. The complaint is substantially similar to a lawsuit filed by the New England Carpenters Pension Fund in federal court on September 4, 2008, which the plaintiff voluntarily dismissed on September 26, 2008 without prejudice to its right to re-file. However, this new lawsuit has fewer claims and Anti-Dumping Dutiesasserts no federal causes of action. The action is purportedly brought on behalf of the Company, naming it as a nominal defendant and naming as defendants certain current and former officers and directors of the Company.
In 2005, we recordedThe plaintiff alleges, among other things, that the individual defendants participated in the backdating of stock options, breached fiduciary duties, caused or allowed the Company to issue false and misleading financial statements and proxy statements, and sold Company stock while in possession of material non-public information. The plaintiff seeks, among other things, unspecified monetary damages against the individual defendants, certain equitable and other relief relating to the profits from the alleged improper conduct, the adoption of certain Company corporate governance proposals, the imposition of a receivableconstructive trust over the defendants’ stock options and proceeds, punitive damages, the rescission of $5 million relatedcertain unexercised options, and the reimbursement of litigation costs. The plaintiff is not seeking any monetary relief from the Company. Policies of directors and officers liability insurance are in force, subject to an ongoing international dispute over duties imposed by the United States on softwood lumber imported from Canada. In 2006 the U.S.customary limits and Canada finalized an agreement to settle this dispute and as a result, we were refunded $21 million in duties and interest for our claim. We recorded this refund as income ($16 million in 2006 and $5 million in 2005) as part of discontinued operations. Since this claim is now fully settled, we do not anticipate any further payments.exclusions.
The complaint is based on a statistical analysis of stock option grants and Leggett stock prices that the Company believes is flawed. The Company believes this lawsuit does not take into consideration important aspects of Leggett’s stock option plans. For example, the plaintiff has noted only one set of stock option grants, made on December 30, 2005, within what we believe to be the applicable 5-year statute of limitations. These option grants were made in accordance with the Company’s Deferred Compensation Program, which (i) provided that options would be dated on the last business day of December, and (ii) was filed with the SEC on December 2, 2005 setting out the pricing mechanism well before the grant date. The Company provided plaintiff’s counsel with this publicly available documentation before they dismissed the prior federal court lawsuit. The Company expects that the outcome of this litigation will not have a material adverse effect on its financial condition, operating cash flows or results of operations. Q—Other Expense The components of other expense from continuing operations were as follows: | | | | | | | | | | | | | | | | Year ended December 31
| | | | | 2007
| | | 2006
| | | 2005
| | Gain on asset sale | | $ | (12.1 | ) | | $ | (8.6 | ) | | $ | (5.7 | ) | Restructuring charges | | | 14.3 | | | | 14.5 | | | | 17.7 | | Asset impairments | | | 11.3 | | | | 4.0 | | | | 17.7 | | Currency (gain) loss | | | 2.2 | | | | .9 | | | | .4 | | Other (income) expense | | | (1.1 | ) | | | (1.3 | ) | | | 1.0 | | | | |
|
|
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|
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| |
|
|
| | | | $ | 14.6 | | | $ | 9.5 | | | $ | 31.1 | | | | |
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|
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
| | | | | | | | | | | | | | | | Year ended December 31
| | | | | 2008
| | | 2007
| | | 2006
| | Gain on asset sale | | $ | (14.6 | ) | | $ | (11.4 | ) | | $ | (8.4 | ) | Restructuring charges | | | 17.9 | | | | 14.1 | | | | 13.3 | | Asset impairments | | | 13.3 | | | | 6.2 | | | | 3.4 | | Currency loss | | | — | | | | 2.2 | | | | .9 | | Other income | | | (.8 | ) | | | (1.8 | ) | | | (1.0 | ) | | | |
|
|
| |
|
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| |
|
|
| | | | $ | 15.8 | | | $ | 9.3 | | | $ | 8.2 | | | | |
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|
R—Derivative Financial Instruments Risk Management Strategy & Objectives The Company is subject to market and financial risks related to interest rates, foreign currency, and commodities. In the normal course of business, the Company utilizes derivative instruments (individually or in combinations) to manage these risks. The Company seeks to use derivative contracts that qualify for hedge accounting treatment; however, some instruments that economically manage currency risk may not qualify for hedge accounting treatment. It is the Company’s policy not to speculate inusing derivative instruments. Cash Flow Hedges At December 31, 20072008 and 2006,2007, the Company had outstanding derivative financial instruments that hedge forecasted transactions and anticipated cash flows. The changes in fair value of unexpired contracts are recorded in other comprehensive income and reclassified to income or expense in the period in which earnings are impacted. Commodity Cash Flow Hedges The commodity cash flow hedges primarily manage natural gas commodity price risk. There were $9.2 in outstanding commodity hedges at both December 31, 2008 and 2007, all of which had maturities less than 1 year. None of these hedges had maturities beyond 12 months; however the3 years. The Company routinely hedges commodity price risk up to 36 months. The Company recognized expenseincome (expense) on these commodity hedges of $2.4 and $4.4$1.1, $(2.4), $(4.4) for years ended December 31, 2008, 2007 and 2006, respectively. Foreign Currency Cash Flow Hedges The foreign currency hedges manage risk associated with exchange rate volatility of various currencies. Of the $30.9 in foreign currency cash flow hedges at December 31, 2008, 99% hedged Canadian dollar exposures and 1% hedged British pound exposures. Of the $47.6 in foreign currency cash flow hedges at December 31, 2007, 44% hedged Canadian dollar exposures, 35% Mexican peso exposures, and 21% hedged other currencies including the British pound, Euro, and Australian dollar. Of the $53.8 in foreign currency cash flow hedges at December 31, 2006, 65% hedged Canadian dollar exposures, 22% Mexican peso exposures, and 13% hedged other currencies including the British pound, Euro, and Australian dollar. In general, foreign currency cash flow hedges have maturities within 2 years.1 year. The Company recognized income on these hedges of $2.4, $3.9 and $1.5 for the years ended December 31, 2008, 2007 and 2006, respectively. Fair Value Hedges The Company’s fair value hedges are not material and are outstanding to manage foreign currency risk associated with tradesubsidiaries’ receivables of a Canadian subsidiary.and payables. Hedges designated as fair value hedges recognize gain or loss currently in earnings. Net Investment Hedges At December 31, 2007 and 2006,In September 2008, the Company hadliquidated a $30.0 in derivatives on a notional basis designated as hedging the net investment in a foreign operation. This hedge manages risk associated with the net investment inof a Swiss subsidiary. Changes in the valueThe liquidation had a cash cost of the hedge offset the changes in the value$4.4. The net impact to other comprehensive income of $30.0 of the foreign net investment on a consolidated basis. As of December 31, 2007, the netthis investment hedge had a maturity within 12 months. In general net investment hedges may have maturities up to 5 to 8 years.
Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)since inception was expense of $4.2.
Hedge Effectiveness The Company considers all hedges to be highly effective and as a result, we have not recorded any material amounts for ineffectiveness. At December 31, 2007,2008, the Company had two derivative transactions that did not qualify for hedge accounting treatment under SFAS 133 “Accounting for Derivative Instruments and Hedging Activities.” The first transaction was a commodity hedge for the purchase of aluminum in the amount of $2.6. The second transaction was a cross-currency swap entered to economically hedge an inter-company debt exposure. The notional amount of the swap is $28.0. Gains or losses on these transactions are recorded directly to income and expense in the period impacted and economically offset gains and losses on the underlying hedged item in discontinued operations and other income, respectively.income. The transactions disclosed below include only transactions that qualified for hedge accounting treatment under SFAS 133 in the years 20072008 and 2006.2007. The fair values of the derivatives reflect the change in market value of the derivative from the date of trade execution, and do not consider the offsetting underlying hedged item. | | | | 2007
| | 2006
| | | 2008
| | 2007
| | | | | Total USD
Equivalent
Notional
Amount
| | Fair Value
at 12/31/07
| | Total USD
Equivalent
Notional
Amount
| | Fair Value
at 12/31/06
| | | Total USD
Equivalent
Notional
Amount
| | Fair Value
at 12/31/08
| | Total USD
Equivalent
Notional
Amount
| | Fair Value
at 12/31/07
| | Commodity cash flow hedges | | $ | 9.2 | | $ | (.1 | ) | | $ | 21.8 | | $ | (2.4 | ) | | $ | 9.2 | | $ | (1.6 | ) | | $ | 9.2 | | $ | (.1 | ) | Foreign currency cash flow hedges | | | 47.6 | | | 2.2 | | | | 53.8 | | | .6 | | | | 30.9 | | | .6 | | | | 47.6 | | | 2.2 | | | | |
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| Total cash flow hedges | | | 56.8 | | | 2.1 | | | | 75.6 | | | (1.8 | ) | | | 40.1 | | | (1.0 | ) | | | 56.8 | | | 2.1 | | Fair value hedges | | | 7.8 | | | .1 | | | | 3.0 | | | (.4 | ) | | | 3.5 | | | .1 | | | | 7.8 | | | .1 | | Net investment hedges | | | 30.0 | | | (3.7 | ) | | | 30.0 | | | (1.9 | ) | | | — | | | — | | | | 30.0 | | | (3.7 | ) | | | |
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| Total derivative instruments | | $ | 94.6 | | | (1.5 | ) | | $ | 108.6 | | | (4.1 | ) | | $ | 43.6 | | | (.9 | ) | | $ | 94.6 | | | (1.5 | ) | | | |
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| | | Deferred income taxes | | | | | 1.1 | | | | | 1.4 | | | | | | .9 | | | | | 1.1 | | | | | | |
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| Total, net of tax | | | | $ | (.4 | ) | | | $ | (2.7 | ) | | | | $ | — | | | | $ | (.4 | ) | | | | | |
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Leggett & Platt, Incorporated
Notes to Consolidated Financial Statements—(Continued)
S—Accumulated Other Comprehensive Income Accumulated other comprehensive income consists of foreign currency translation adjustments, net unrealized gains (losses) on net investment hedges, cash flow hedges, and defined benefit plans. The following table sets forth the changes in each component of accumulated other comprehensive income: | | | | Foreign
Currency
Translation
Adjustments
(1)
| | Net
Investment
Hedges
(2)
| | Cash
Flow
Hedges
(3)
| | Other
Items
| | Defined
Benefit
Pension
Plans
(4)
| | Accumulated
Other
Comprehensive
Income
| | | Foreign
Currency
Translation
Adjustments
(1)
| | Net
Investment
Hedges
(2)
| | Cash
Flow
Hedges
(3)
| | Other
Items
| | Defined
Benefit
Pension
Plans
(4)
| | Accumulated
Other
Comprehensive
Income
| | Balance January 1, 2005 | | $ | 92.5 | | | $ | (2.9 | ) | | $ | — | | | $ | — | | | $ | (7.3 | ) | | $ | 82.3 | | | Period change | | | (21.9 | ) | | | 2.8 | | | | 4.3 | | | | — | | | | (1.2 | ) | | | (16.0 | ) | | | | |
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| | Balance December 31, 2005 | | | 70.6 | | | | (.1 | ) | | | 4.3 | | | | — | | | | (8.5 | ) | | | 66.3 | | | Balance January 1, 2006 | | | $ | 70.6 | | | $ | (.1 | ) | | $ | 4.3 | | | $ | — | | | $ | (8.5 | ) | | $ | 66.3 | | Period change | | | 33.9 | | | | (1.1 | ) | | | (5.6 | ) | | | (.2 | ) | | | 2.1 | | | | 29.1 | | | | 33.9 | | | | (1.1 | ) | | | (5.6 | ) | | | (.2 | ) | | | 2.1 | | | | 29.1 | | Adjustment to initially apply SFAS 158 | | | — | | | | — | | | | — | | | | — | | | | (19.8 | ) | | | (19.8 | ) | | | — | | | | — | | | | — | | | | — | | | | (19.8 | ) | | | (19.8 | ) | | | |
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| Balance December 31, 2006 | | | 104.5 | | | | (1.2 | ) | | | (1.3 | ) | | | (.2 | ) | | | (26.2 | ) | | | 75.6 | | | | 104.5 | | | | (1.2 | ) | | | (1.3 | ) | | | (.2 | ) | | | (26.2 | ) | | | 75.6 | | Period change | | | 94.0 | | | | (1.1 | ) | | | 2.9 | | | | .2 | | | | 21.9 | | | | 117.9 | | | | 94.0 | | | | (1.1 | ) | | | 2.9 | | | | .2 | | | | 21.9 | | | | 117.9 | | | | |
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| Balance December 31, 2007 | | $ | 198.5 | | | $ | (2.3 | ) | | $ | 1.6 | | | $ | — | | | $ | (4.3 | ) | | $ | 193.5 | | | | 198.5 | | | | (2.3 | ) | | | 1.6 | | | | — | | | | (4.3 | ) | | | 193.5 | | Period change | | | | (146.5 | ) | | | 2.3 | | | | (1.9 | ) | | | — | | | | (36.0 | ) | | | (182.1 | ) | | | |
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| Balance December 31, 2008 | | | $ | 52.0 | | | $ | — | | | $ | (.3 | ) | | $ | — | | | $ | (40.3 | ) | | $ | 11.4 | | | | | |
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| (1) | Foreign currency translation adjustments activity is shown net of income tax expense (benefit) of $0 in 2008; $2.0 in 2007; and $(1.0) in 2006; and $1.8 in 2005.2006. |
| (2) | Net investment hedges activity is shown net of income tax benefit of $(1.2) in 2008; $(.7) in 2007; and $(.7) in 2006; and $(.1) in 2005.2006. The activity also includes reclassifying to foreign currency translation adjustments $(4.2) (the net impact to other comprehensive income since inception of this hedge) due to the unwinding of the net investment hedge on September 30, 2008. |
| (3) | Cash flow hedge activity is shown net of income tax (benefit) expense (benefit) of $(1.2) in 2008; $1.1 in 2007; and $(3.2) in 2006; $2.7 in 2005.2006. |
| (4) | Defined benefit pension plan activity is shown net of income tax (benefit) expense (benefit) of $(21.3) in 2008; $13.7 in 2007; and $1.4 in 2006; and $(.7) in 2005.2006. Adjustment to initially apply SFAS 158 is shown net of income tax benefit of $(12.5) in 2006. |
T—Fair Value Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157 (SFAS 157), “Fair Value Measurements,” except as it applies to those nonfinancial assets and nonfinancial liabilities affected by the one year delay identified in FASB Staff Position 157-2, “Effective Date of FASB Statement No. 157.” The primary areas in which the Company utilizes fair value measures applicable to the one year delay are allocating purchase price to the assets and liabilities of acquired companies and evaluating long-lived assets for potential impairment. The areas in which the Company utilizes fair value measures that were included in the January 1, 2008 adoption are cash equivalents, short-term investments and derivatives hedging financial risks primarily related to interest rates, foreign currency, and commodities. SFAS 157 does not require any new fair value measurements, but requires expanded disclosure about fair value measurements and establishes a three level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following categories: Level 1: Quoted prices for identical assets or liabilities in active markets. Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Short-term investments in this category are valued using discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. Derivative assets and liabilities in this category are valued using models that consider various assumptions and information from market-corroborated sources. The models used are primarily industry-standard models that consider items such as quoted prices, market interest rate curves applicable to the instruments being valued as of the end of each period, discounted cash flows, volatility factors, current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Level 3: Unobservable inputs that are not corroborated by market data. The following table presents assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2008: | | | | | | | | | | | | | | | | Level 1
| | Level 2
| | Level 3
| | Total
| Assets: | | | | | | | | | | | | | Cash equivalents: | | | | | | | | | | | | | Money market funds | | $ | 76.8 | | $ | — | | $ | — | | $ | 76.8 | Short-term investments: | | | | | | | | | | | | | Bank time deposits | | | — | | | 2.7 | | | — | | | 2.7 | Other | | | — | | | 4.0 | | | — | | | 4.0 | Derivative assets | | | — | | | 2.1 | | | — | | | 2.1 | | | |
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| Total assets | | $ | 76.8 | | $ | 8.8 | | $ | — | | $ | 85.6 | | | |
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| Liabilities: | | | | | | | | | | | | | Derivative liabilities | | $ | 2.8 | | $ | — | | $ | — | | $ | 2.8 | | | |
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| Total liabilities | | $ | 2.8 | | $ | — | | $ | — | | $ | 2.8 | | | |
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Quarterly Summary of Earnings Leggett & Platt, Incorporated (Unaudited) (Dollar amounts in millions, except per share data) | Year ended December 31
| | First
| | Second
| | Third
| | Fourth**
| | Total
| | | First
| | Second
| | Third
| | Fourth
| | Total
| | 2008 | | | | | | | | Net sales | | | $ | 998.3 | | $ | 1,063.1 | | $ | 1,132.2 | | | $ | 882.5 | | | $ | 4,076.1 | | Gross profit | | | | 177.1 | | | 196.4 | | | 207.1 | | | | 110.6 | | | | 691.2 | | Earnings (loss) from continuing operations before income taxes | | | | 58.1 | | | 69.7 | | | 85.5 | | | | (25.3 | ) | | | 188.0 | | Net earnings (loss) from continuing operations | | | | 39.2 | | | 43.5 | | | 48.4 | | | | (8.2 | ) | | | 122.9 | | Earnings (loss) per share from continuing operations | | | | | | | | Basic | | | $ | .23 | | $ | .25 | | $ | .29 | | | $ | (.05 | ) | | $ | .73 | | | | | |
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| Diluted | | | $ | .23 | | $ | .25 | | $ | .29 | | | $ | (.05 | ) | | $ | .73 | | | | | |
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| Earnings (loss) from discontinued operations, net of tax | | | | 4.2 | | | 2.8 | | | (15.7 | ) | | | (9.8 | ) | | | (18.5 | ) | Earnings (loss) per share from discontinued operations | | | | | | | | Basic | | | $ | .02 | | $ | .02 | | $ | (.09 | ) | | $ | (.06 | ) | | $ | (.11 | ) | | | | |
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| Diluted | | | $ | .02 | | $ | .02 | | $ | (.09 | ) | | $ | (.06 | ) | | $ | (.11 | ) | | | | |
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| Net earnings (loss) | | | | 43.4 | | | 46.3 | | | 32.7 | | | | (18.0 | ) | | | 104.4 | | Total earnings (loss) per share | | | | | | | | Basic | | | $ | .25 | | $ | .27 | | $ | .20 | | | $ | (.11 | ) | | $ | .62 | | | | | |
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| Diluted | | | $ | .25 | | $ | .27 | | $ | .20 | | | $ | (.11 | ) | | $ | .62 | | | | | |
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| 2007* | | | | | | | | | | | | | | | Net sales | | $ | 1,063.5 | | $ | 1,083.0 | | $ | 1,105.8 | | $ | 1,054.1 | | | $ | 4,306.4 | | | $ | 1,047.6 | | $ | 1,070.5 | | $ | 1,092.2 | | | $ | 1,039.7 | | | $ | 4,250.0 | | Gross profit | | | 198.6 | | | 206.8 | | | 216.8 | | | 176.4 | | | | 798.6 | | | | 196.5 | | | 207.0 | | | 215.6 | | | | 176.7 | | | | 795.8 | | Earnings (loss) from continuing operations before income taxes | | | 80.3 | | | 72.7 | | | 91.8 | | | (116.4 | ) | | | 128.4 | | | | 80.0 | | | 74.3 | | | 92.6 | | | | (105.1 | ) | | | 141.8 | | Net earnings (loss) from continuing operations | | | 56.5 | | | 55.2 | | | 63.6 | | | (124.3 | ) | | | 51.0 | | | | 56.4 | | | 56.3 | | | 64.1 | | | | (117.4 | ) | | | 59.4 | | Earnings (loss) per share from continuing operations | | | | | | | | | | | | | | | Basic | | $ | .31 | | $ | .30 | | $ | .36 | | $ | (.71 | ) | | $ | .28 | | | $ | .31 | | $ | .31 | | $ | .36 | | | $ | (.67 | ) | | $ | .33 | | | | |
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| Diluted | | $ | .31 | | $ | .30 | | $ | .36 | | $ | (.71 | ) | | $ | .28 | | | $ | .31 | | $ | .31 | | $ | .36 | | | $ | (.67 | ) | | $ | .33 | | | | |
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| Earnings (loss) from discontinued operations, net of tax | | | 19.2 | | | 4.8 | | | 2.1 | | | (88.3 | ) | | | (62.2 | ) | | | 19.3 | | | 3.7 | | | 1.6 | | | | (95.2 | ) | | | (70.6 | ) | Earnings (loss) per share from discontinued operations | | | | | | | | | | | | | | | Basic | | $ | .10 | | $ | .03 | | $ | .01 | | $ | (.50 | ) | | $ | (.34 | ) | | $ | .10 | | $ | .02 | | $ | .01 | | | $ | (.54 | ) | | $ | (.39 | ) | | | |
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| Diluted | | $ | .10 | | $ | .03 | | $ | .01 | | $ | (.50 | ) | | $ | (.34 | ) | | $ | .10 | | $ | .02 | | $ | .01 | | | $ | (.54 | ) | | $ | (.39 | ) | | | |
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| Net earnings (loss) | | | 75.7 | | | 60.0 | | | 65.7 | | | (212.6 | ) | | | (11.2 | ) | | | 75.7 | | | 60.0 | | | 65.7 | | | | (212.6 | ) | | | (11.2 | ) | Total earnings (loss) per share | | | | | | | | | | | | | | | Basic | | $ | .41 | | $ | .33 | | $ | .37 | | $ | (1.21 | ) | | $ | (.06 | ) | | $ | .41 | | $ | .33 | | $ | .37 | | | $ | (1.21 | ) | | $ | (.06 | ) | | | |
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| Diluted | | $ | .41 | | $ | .33 | | $ | .37 | | $ | (1.21 | ) | | $ | (.06 | ) | | $ | .41 | | $ | .33 | | $ | .37 | | | $ | (1.21 | ) | | $ | (.06 | ) | | | |
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| 2006* | | | | | | | | | | Net sales | | $ | 1,065.3 | | $ | 1,094.6 | | $ | 1,132.5 | | $ | 1,040.6 | | | $ | 4,333.0 | | | Gross profit | | | 188.5 | | | 204.5 | | | 219.5 | | | 196.9 | | | | 809.4 | | | Earnings from continuing operations before income taxes | | | 63.8 | | | 82.6 | | | 108.7 | | | 79.3 | | | | 334.4 | | | Net earnings from continuing operations | | | 43.9 | | | 65.7 | | | 73.4 | | | 52.6 | | | | 235.6 | | | Earnings per share from continuing operations | | | | | | | | | | Basic | | $ | .23 | | $ | .35 | | $ | .39 | | $ | .29 | | | $ | 1.26 | | | | | |
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| | Diluted | | $ | .23 | | $ | .35 | | $ | .39 | | $ | .29 | | | $ | 1.26 | | | | | |
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| | Earnings from discontinued operations, net of tax | | | 18.2 | | | 18.5 | | | 10.6 | | | 17.4 | | | | 64.7 | | | Earnings per share from discontinued operations | | | | | | | | | | Basic | | $ | .10 | | $ | .10 | | $ | .06 | | $ | .09 | | | $ | .35 | | | | | |
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| | Diluted | | $ | .10 | | $ | .10 | | $ | .06 | | $ | .09 | | | $ | .35 | | | | | |
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| | Net earnings | | | 62.1 | | | 84.2 | | | 84.0 | | | 70.0 | | | | 300.3 | | | Total earnings per share | | | | | | | | | | Basic | | $ | .33 | | $ | .45 | | $ | .45 | | $ | .38 | | | $ | 1.61 | | | | | |
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| | Diluted | | $ | .33 | | $ | .45 | | $ | .45 | | $ | .38 | | | $ | 1.61 | | | | | |
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| * | Quarterly financial data has been retrospectively adjusted to reflect discontinued operations. See note B for further discussion. |
** | As discussed in Notes C and D beginning on page 68, the Company incurred asset impairment and restructuring charges totaling $302 in the fourth quarter of 2007. Of these charges, approximately $137 were associated with discontinued operations and $165 related to continuing operations. |
LEGGETT & PLATT, INCORPORATED SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Amounts in millions) | Column A
| | Column B
| | Column C
| | Column D
| | Column E
| | Column B
| | Column C
| | Column D
| | Column E
| Description
| | Balance
at
Beginning
of Period
| | Additions
Charged
to Cost
and
Expenses
| | Deductions
| | Balance
at End of
Period
| | Balance
at
Beginning
of Period
| | Additions
Charged
to Cost
and
Expenses
| | Deductions
| | Balance
at End of
Period
| Year ended December 31, 2007 (1) | | | | | | | | Year ended December 31, 2008 (1) | | | | | | | | Allowance for doubtful receivables | | | $ | 23.9 | | $ | 22.8 | | $ | 8.5 | (2) | | $ | 38.2 | | | | |
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| Excess and obsolete inventory reserve, LIFO basis | | | $ | 35.3 | | $ | 27.1 | | $ | 36.2 | | | $ | 26.2 | | | | |
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| Tax valuation allowance | | | $ | 55.2 | | $ | 1.7 | | $ | 10.6 | (3) | | $ | 46.3 | | | | |
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| Year ended December 31, 2007 | | | | | | | | Allowance for doubtful receivables | | $ | 21.9 | | $ | 8.5 | | $ | 6.5 | (2) | | $ | 23.9 | | $ | 21.9 | | $ | 8.5 | | $ | 6.5 | (2) | | $ | 23.9 | | | |
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| Excess and obsolete inventory reserve, LIFO basis | | $ | 25.6 | | $ | 22.5 | | $ | 12.8 | | | $ | 35.3 | | $ | 25.6 | | $ | 22.5 | | $ | 12.8 | | | $ | 35.3 | | | |
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| Tax valuation allowance | | $ | 37.3 | | $ | 16.1 | | $ | (1.8 | )(3) | | $ | 55.2 | | $ | 37.3 | | $ | 16.1 | | $ | (1.8 | )(3) | | $ | 55.2 | | | |
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| Year ended December 31, 2006 | | | | | | | | | | | | | Allowance for doubtful receivables | | $ | 20.8 | | $ | 4.9 | | $ | 3.8 | (2) | | $ | 21.9 | | $ | 20.8 | | $ | 4.9 | | $ | 3.8 | (2) | | $ | 21.9 | | | |
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| Excess and obsolete inventory reserve, LIFO basis | | $ | 34.2 | | $ | 10.7 | | $ | 19.3 | | | $ | 25.6 | | $ | 34.2 | | $ | 10.7 | | $ | 19.3 | | | $ | 25.6 | | | |
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| Tax valuation allowance | | $ | 38.0 | | $ | 1.8 | | $ | 2.5 | (3) | | $ | 37.3 | | $ | 38.0 | | $ | 1.8 | | $ | 2.5 | (3) | | $ | 37.3 | | | |
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| Year ended December 31, 2005 | | | | | | | | Allowance for doubtful receivables | | $ | 18.0 | | $ | 6.8 | | $ | 4.0 | (2) | | $ | 20.8 | | | | |
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| | Excess and obsolete inventory reserve, LIFO basis | | $ | 25.1 | | $ | 24.9 | | $ | 15.8 | | | $ | 34.2 | | | | |
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| | Tax valuation allowance | | $ | 29.0 | | $ | 12.8 | | $ | 3.8 | (3) | | $ | 38.0 | | | | |
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| (1) | The balances at December 31, 20072008 include assets held for sale of $1.2$.5 of allowance for doubtful receivables, and $6.7$2.9 of excess and obsolete inventory reserve, LIFO basisreserve. |
| (2) | Uncollectible accounts charged off, net of recoveriesrecoveries. |
| (3) | Federal tax effect of state and foreign net operating loss carryforwards and credits and changes in currency exchange rates. |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | LEGGETTLEGGETT & PLATT, INCORPORATEDPLATT, INCORPORATED | | | | By: | | /s/ DAVID S. HAFFNER | | | | David S. Haffner | | | | President and | | | | Chief Executive Officer |
Dated: February 26, 200825, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrantregistrant and in the capacities and on the dates indicated. | | | | | Signature
| | Title
| | Date
| | | | (a) Principal Executive Officer: | | | | | | | | /s/ S/ DAVID S. HAFFNER
David S. Haffner | | President and Chief Executive Officer | | February 26, 200825, 2009 | | | | (b) Principal Financial Officer: | | | | | | | | /s/ S/ MATTHEW C. FLANIGAN
Matthew C. Flanigan | | Senior Vice President and Chief Financial Officer | | February 26, 200825, 2009 | | | | (c) Principal Accounting Officer: | | | | | | | | /s/ S/ WILLIAM S. WEIL
William S. Weil | | Vice President, Corporate Controller and Chief Accounting Officer | | February 26, 200825, 2009 | | | | (d) Directors: | | | | | | | | RAYMOND F. BENTELE*
Raymond F. Bentele | | Director | | | | | | RALPH W. CLARK*
Ralph W. Clark | | Director | | | | | | HRARRYOBERT M. CTORNELLED ENLOE, JR.*III*
Harry M. Cornell, Jr.
| | Director | | | | | |
Robert Ted Enloe, III | | Director | | | | | | RICHARD T. FISHER*
Richard T. Fisher | | Chairman | | | | | | KARL G. GLASSMAN*
Karl G. Glassman | | Director | | |
| | | | | Signature
| | Title
| | Date
| | | | KDARLAVID G. GS. HLASSMANAFFNER*
Karl G. GlassmanDavid S. Haffner
| | Director | | | | | | DJAVIDOSEPH S. HW. MAFFNERCCLANATHAN*
David S. HaffnerJoseph W. McClanathan
| | Director | | | | | | JOSEPHUDY W. MC. OCCLANATHANDOM*
Joseph W. McClanathanJudy C. Odom
| | Director | | | | | | MAURICE E. PURNELL, JUDYR C. ODOM.*
Judy C. OdomMaurice E. Purnell, Jr.
| | Director | | | | | | MAURICE E. PURNELL, JR.*
Maurice E. Purnell, Jr.
| | Director | | | | | | PHOEBE A. WOOD*
Phoebe A. Wood | | Director | | | | | | FELIX E. WRIGHT*
Felix E. Wright
| | Chairman | | |
| | | | | | | | | | *By: | | /s/ ERNEST C. JETT | | | | | | February 26, 200825, 2009 | | | | Ernest C. Jett | | | | | | | | | | Attorney-in-Fact Under Power-of-Attorney dated February 21, 200819, 2009 | | | | | | |
EXHIBIT INDEX | | | | | Exhibit No.
| | Document Description
| | 2.1 | | Unit Purchase Agreement by and among the Company, Pace Industries, LLC and KPI Acquisition, LLC, and certain other affiliates of Kenner & Company, Inc., dated July 16, 2008, including Exhibit A – Promissory Note; and Exhibit B – Certificate of Incorporation Containing Preferred Stock Terms, filed July 17, 2008 as Exhibit 2.1 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845). Exhibit 2.1 contains a list briefly identifying the contents of all omitted schedules. The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request. | | | | 3.1 | | Restated Articles of Incorporation of the Company as of May 13, 1987; Amendment dated May 12, 1993; and Amendment dated May 20, 1999, filed March 11, 2004 as Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 are incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 3.2**3.2 | | Bylaws of the Company, as amended through February 21, 2008.August 7, 2008, filed August 7, 2008 as Exhibit 3.2.1 to the Company’s Form 10-Q for the quarter ended June 30, 2008, is incorporated by reference. (SEC File No. 001-07845) | | | | 4.1 | | Article III of the Company’s Restated Articles of Incorporation, as amended, filed as Exhibit 3.1 hereto, is incorporated by reference. | | | | 4.2 | | Form of 1999 Rights Agreement effective February 15, 1999 between the Company and Computershare Trust Company, N.A., as successor Rights Agent to ChaseMellon Shareholder Services, LLC, which includes the form of Certificate of Designation, setting forth the terms of the Series A Junior Participating Preferred Stock, no par value, as Exhibit A; the form of Rights Certificate as Exhibit B; and the Summary of Preferred Stock Purchase Rights as Exhibit C, filed December 1, 1998 as Exhibit 4 to the Company’s Current Report on Form 8-K, is incorporated by reference. (SEC File No. 1-7845) | | | 4.3 | | Indenture, dated as of November 24, 1999 between the Company and U.S. Bank National Association (successor in interest to The Bank of New York Mellon Corporation (SuccessorTrust Company, NA which was successor in interest to JPMorgan Chase Bank (formerly known as the Chase Manhattan Bank)), as Trustee, and Form of Note included therein under Sections 202 and 203 filed November 5, 1999 as Exhibit 4.1 to Registration Statement No. 333-90443 on Form S-3, is incorporated herein by reference. (SEC File No. 1-7845)001-07845) | | | 4.44.2.1** | | Tri-Party Agreement under the November 24, 1999 Indenture, between the Company, The Bank of New York Mellon Trust Company, NA (successor in interest to The Chase Manhattan Bank) (as Prior Trustee) and U.S. Bank National Association (as Successor Trustee), dated February 20, 2009. | | | | 4.3 | | Senior Indenture dated May 6, 2005 between the Company and U.S. Bank National Association (successor in interest to The Bank of New York Mellon Corporation (SuccessorTrust Company, NA which was successor in interest to JPMorgan Chase Bank, N.A.), as Trustee, filed May 10, 2005 as Exhibit 4.1 to the Company’s Current Report on Form 8-K, is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 4.54.3.1** | | Tri-Party Agreement under the May 6, 2005 Senior Indenture, between the Company, The Bank of New York Mellon Trust Company, NA (successor in interest to JPMorgan Chase Bank, N.A.) (as Prior Trustee) and U.S. Bank National Association (as Successor Trustee), dated February 20, 2009. |
| | | Exhibit No.
| | Document Description
| | 4.4 | | Form of Fixed Rate Note filed May 10, 2005 as Exhibit 4.2 to the Company’s Current Report on Form 8-K, is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 4.64.5 | | Form of Floating Rate Note filed May 10, 2005 as Exhibit 4.3 to the Company’s Current Report on Form 8-K, is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 4.74.6 | | Form of $200,000,000 4.7% Notes due 2013 issued pursuant to the Indenture dated November 24, 1999, and filed March 20, 2003 as Exhibit 4.1 to the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 1-7845)001-07845) | | | 4.84.7 | | Form of $150,000,000 4.4% Notes due 2018 issued pursuant to the Indenture dated November 24, 1999, and filed June 20, 2003 as Exhibit 4.1 to the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 1-7845)001-07845) | | | 4.94.8 | | Form of $180,000,000 4.65% Notes due 2014 issued pursuant to the Indenture dated November 24, 1999, and filed November 9, 2004 as Exhibit 4.1 to the Company’s Form 8-K, is incorporated herein by reference. (SEC File No. 1-7845)001-07845) | | | 4.104.9 | | Form of $200,000,000 5.00% Notes due 2015 issued pursuant to the Senior Indenture dated May 6, 2005, and filed August 11, 2005 as Exhibit 4.1 to the Company’s Current Report on Form 8-K, is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | | 10.1* | | Employment Agreement between the Company and David S. Haffner, dated May 10, 2006, filed May 10, 2006 as Exhibit 10.1 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.2* | | Employment Agreement between the Company and Karl G. Glassman, dated May 10, 2006, filed May 10, 2006 as Exhibit 10.3 to the Company’s Form 8-K is incorporated by reference. (SEC File No. 001-07845) | | | | 10.3*,** | | Amended and Restated Severance Benefit Agreement between the Company and David S. Haffner, dated November 6, 2008. | | | | 10.4*,** | | Amended and Restated Severance Benefit Agreement between the Company and Karl G. Glassman, dated November 15, 2008. | | | | 10.5* | | Form of Indemnification Agreement approved by the shareholders of the Company and entered into between the Company and its directors, filed March 28, 2002, as Exhibit 10.11 to the Company’s Form 10-K for the year ended December 31, 2001 is incorporated by reference. (SEC File No. 001-07845) | | | | 10.6* | | Summary Sheet for Executive Cash Compensation, filed March 31, 2008 as Exhibit 10.1 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.7* | | Summary Sheet of Director Compensation, filed May 9, 2008 as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended March 31, 2008, is incorporated herein by reference. (SEC File No. 001-07845) |
| | | Exhibit No.
| | Document Description
| | 10.8.1* | | The Company’s Flexible Stock Plan, amended and restated, effective as of May 8, 2008, filed March 27, 2008 as Appendix C to the Company’s Definitive Proxy Statement for the Annual Meeting of Shareholders, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.8.2* | | Form of Non-Qualified Stock Option Award pursuant to the Company’s Flexible Stock Plan, filed November 2, 2006 as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2006, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.8.3* | | Form of Restricted Stock Agreement pursuant to the Company’s Flexible Stock Plan, filed November 3, 2004 as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended September 30, 2004, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.8.4* | | Form of Performance Stock Unit Award Agreement pursuant to the Company’s Flexible Stock Plan, filed February 26, 2008 as Exhibit 10.11.1 to the Company’s Form 10-K for the year ended December 31, 2007, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.8.5* | | Form of Director Restricted Stock Agreement pursuant to the Company’s Flexible Stock Plan, filed August 7, 2008 as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2008, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.8.6* | | Form of Director Restricted Stock Unit Award Agreement pursuant to the Company’s Flexible Stock Plan, filed August 7, 2008 as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2008, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.9* | | The Company’s 2004 Key Officers Incentive Plan, amended and restated effective January 1, 2006 filed March 1, 2006 as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 2005, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.10* | | Award Formula under the Company’s 2004 Key Officers Incentive Plan, filed March 31, 2008 as Exhibit 10.2 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.11* | | The Company’s Director Stock Option Plan, as amended and restated November 13, 2002, filed March 18, 2003 as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 2002, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.12* | | The Company’s Deferred Compensation Program, Amended and Restated, Effective as of December 1, 2007, filed February 26, 2008 as Exhibit 10.14 to the Company’s Form 10-K for the year ended December 31, 2007 is incorporated by reference. (SEC File No. 001-07845) | | | | 10.13* | | The Company’s Executive Deferred Stock Program, filed March 31, 1999 as Exhibit 10.16 to the Company’s Form 10-K for the year ended December 31, 1998, is incorporated by reference. (SEC File No. 001-07845) |
| | | Exhibit No.
| | Document Description
| | 10.14* | | The Company’s Pre-2005 Executive Stock Unit Program, as amended and restated, effective as of December 31, 2004, filed December 10, 2004 as Exhibit 10.2 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.15* | | The Company’s 2005 Executive Stock Unit Program, as amended, effective as of December 31, 2007, filed February 26, 2008 as Exhibit 10.17 to the Company’s Form 10-K for the year ended December 31, 2007, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.15.1* | | Amendment No. 1 to the Company’s 2005 Executive Stock Unit Program, filed May 8, 2008 as Exhibit 10.1 to the Company’s Form 8-K; is incorporated by reference. (SEC File No. 001-07845) | | | | 10.16*,** | | Description of long-term disability arrangements between the Company and certain executives. | | | | 10.17* | | The Company’s Retirement K Excess Program, amended and restated on November 26, 2007, effective as of January 1, 2007, filed February 26, 2008 as Exhibit 10.19 to the Company’s Form 10-K for the year ended December 31, 2007 is incorporated by reference. (SEC File No. 001-07845) | | | | 10.18* | | Restated and Amended Employment Agreement between the Company and Felix E. Wright dated March 1, 1999, filed March 31, 1999 as Exhibit 10.2 to the Company’s Form 10-K for the year ended December 31, 1998; 1998 is incorporated by reference. (SEC File No. 001-07845) | | | | 10.18.1* | | Amendment No. 1 to the Restated and Amended Employment Agreement of Felix E. Wright, dated October 1, 2002, filed November 13, 2002 as Exhibit 10 to |
| | | Exhibit No.
| | Document Description
| | | the Company’s Form 10-Q for the quarter ended September 30, 2002; 2002 is incorporated by reference. (SEC File No. 001-07845) | | | | 10.18.2* | | Letter Agreement between the Company and Felix E. Wright, dated August 6, 2003, filed August 6, 2003 as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2003; and 2003 is incorporated by reference. (SEC File No. 001-07845) | | | | 10.18.3* | | Amendment No. 2 to the Restated and Amended Employment Agreement of Felix E. Wright, dated August 4, 2004, filed August 5, 2004 as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2004; all of which are incorporated by reference. (SEC File No. 1-7845) | | | 10.2* | | Employment Agreement between the Company and David S. Haffner, dated May 10, 2006, filed May 10, 2006 as Exhibit 10.1 to the Company’s Current Report on Form 8-K,2004 is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 10.3* | | Employment Agreement between the Company and Karl G. Glassman, dated May 10, 2006, filed May 10, 2006 as Exhibit 10.3 to the Company’s Current Report on Form 8-K is incorporated by reference. (SEC File No. 1-7845) | | | 10.4*10.19* | | Restated and Amended Employment Agreement between the Company and Harry M. Cornell, Jr. dated as of August 14, 1996, and Amendment No. 1 to Employment Agreement dated January 1, 1999, and Letter Agreement dated April 24, 2000 extending term of Employment Agreement and Letter Agreement dated March 1, 2001 extending term of Employment Agreement, all of which waswere filed as ofon March 28, 2002 as Exhibit 10.1 to the Company’s Form 10-K for the year ended December 31, 2001 and are incorporated by reference. (SEC File No. 001-07845) |
| | | Exhibit No.
| | Document Description
| | 10.19.1* | | Letter Agreement between the Company and Harry M. Cornell, Jr. dated November 15, 2002, filed March 18, 2003 as Exhibit 10.2 to the Company’s Form 10-K for the year ended December 31, 2002 all of which are incorporated by reference. (SEC File No. 1-7845) | | | 10.5* | | Severance Benefit Agreement between the Company and David S. Haffner, dated May 10, 2006, filed May 10, 2006 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, is incorporated by reference. (SEC File No. 1-7845) | | | 10.6* | | Severance Benefit Agreement between the Company and Karl G. Glassman, dated May 10, 2006, filed May 10, 2006 as Exhibit 10.4 to the Company’s Current Report on Form 8-K, is incorporated by reference. (SEC File No. 1-7845) | | | 10.7* | | Form of Indemnification Agreement approved by the shareholders of the Company and entered into between the Company and its directors and certain executive officers, filed March 28, 2002, as Exhibit 10.11 to the Company’s Form 10-K for the year ended December 31, 2001 is incorporated by reference. (SEC File No. 1-7845) | | | 10.8* | | Summary Sheet for Executive Cash Compensation, filed August 9, 2007 as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2007, is incorporated by reference. (SEC File No. 1-7845) | | | 10.9*,** | | Award Formula under the 2004 Key Officers Incentive Plan. | | | 10.10* | | Summary Sheet of Director Compensation filed May 9, 2007 as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2007, is incorporated by reference. (SEC File No. 1-7845) | | | 10.11* | | The Company’s Flexible Stock Plan, amended and restated, effective as of May 4, 2005, filed March 23, 2005 as Appendix B to the Company’s Definitive Proxy Statement for the Annual Meeting of Shareholders; Form of Non-Qualified Stock Option Award pursuant to the Company’s Flexible Stock Plan, filed November 2, 2006 as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2006; Form of Restricted Stock Agreement pursuant to the Company’s Flexible Stock Plan, filed November 3, 2004 as Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended September 30, 2004; all of which are incorporated by reference. (SEC File No. 1-7845) |
| | | Exhibit No.
| | Document Description
| 10.11.1*,** | | Form of Performance Stock Unit Award Agreement pursuant to the Company’s Flexible Stock Plan. | | | 10.12* | | The Company’s 2004 Key Officers Incentive Plan, amended and restated effective January 1, 2006 filed March 1, 2006 as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 2005, is incorporated by reference. (SEC File No. 1-7845) | | | 10.13* | | The Company’s Director Stock Option Plan, as amended and restated November 13, 2002, filed March 18, 2003 as Exhibit 10.13 to the Company’s Form 10-K for the year ended December 31, 2002, is incorporated by reference. (SEC File No. 1-7845) | | | 10.14*,** | | The Company’s Deferred Compensation Program, Amended and Restated, Effective as of December 1, 2007. | | | 10.15* | | The Company’s Executive Deferred Stock Program, filed March 31, 1999 as Exhibit 10.16 to the Company’s Form 10-K for the year ended December 31, 1998, is incorporated by reference. (SEC File No. 1-7845) | | | 10.16* | | The Company’s Pre-2005 Executive Stock Unit Program, as amended and restated, effective as of December 31, 2004, filed December 10, 2004 as Exhibit 10.2 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 1-7845) | | | 10.17*,** | | The Company’s 2005 Executive Stock Unit Program, as amended, effective as of December 31, 2007. | | | 10.18*,** | | Description of long-term disability arrangements between the Company and certain executives. | | | 10.19*,** | | The Company’s Retirement K Excess Program, amended and restated on November 26, 2007, effective as of January 1, 2007.001-07845) | | | | 10.20 | | Credit Agreement, dated August 5, 2005 among the Company, Wachovia Bank, N.A., as syndication agent, JPMorgan Chase Bank, N.A., as administrative agent, and the participating banking institutions named therein, filed August 9, 2005 as Exhibit 10.1 to the Company’s Current Report on Form 8-K; 8-K is incorporated by reference. (SEC File No. 001-07845) | | | | 10.20.1 | | First Amendment to Credit Agreement, dated July 31, 2006, among the Company, JPMorgan Chase Bank, N.A. as administrative agent, and the participating banking institutions named therein, filed August 3, 2006 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006; 2006 is incorporated by reference. (SEC File No. 001-07845) | | | | 10.20.2 | | Second Amendment to Credit Agreement, dated May 1, 2007, among the Company, JPMorgan Chase Bank, N.A., as administrative agent, and the participating banking institutions named therein, filed May 4, 2007 as Exhibit 10.3 to the Company’s Current Report on Form 8-K; each of which8-K is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 10.20.1**10.20.3 | | Third Amendment to Credit Agreement, dated September 30, 2008, among the Company, JPMorgan Chase Bank, N.A. as administrative agent, and the participating banking institutions named therein, filed October 2, 2008 as Exhibit 10.4 to the Company’s Form 8-K is incorporated by reference. (SEC File No. 001-07845) | | | | 10.21 | | Assignment and Assumption between Bank of America, N.A. and Bank of Tokyo-Mitsubishi UFJ, Ltd., dated February 22, 2008 (regarding the lending commitment under the Company’s Credit Agreement)., filed February 26, 2008 as Exhibit 10.20.1 to the Company’s Form 10-K for the year ended December 31, 2007 is incorporated by reference. (SEC File No. 001-07845) | | | 10.20.2**10.22 | | Assignment and Assumption between The Bank of New York and Comerica Bank, dated February 22, 2008 (regarding the lending commitment under the Company’s Credit Agreement)., filed February 26, 2008 as Exhibit 10.20.2 to the Company’s Form 10-K for the year ended December 31, 2007 is incorporated by reference. (SEC File No. 001-07845) | | | 10.2110.23 | | Assignment and Assumption between HSBC Bank USA National Association and ABN AMRO Bank, N.V., dated April 10, 2008 (regarding the lending commitment under the Company’s Credit Agreement), filed April 11, 2008 as Exhibit 10.1 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.24 | | Assignment and Assumption between BNP Paribas and ABN AMRO Bank, N.V., dated April 10, 2008 (regarding the lending commitment under the Company’s Credit Agreement), filed April 11, 2008 as Exhibit 10.2 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845) |
| | | Exhibit No.
| | Document Description
| | 10.25 | | Assignment and Assumption between BNP Paribas and Arvest Bank, dated April 10, 2008 (regarding the lending commitment under the Company’s Credit Agreement), filed April 11, 2008 as Exhibit 10.3 to the Company’s Form 8-K, is incorporated by reference. (SEC File No. 001-07845) | | | | 10.26 | | Commercial Paper Agency Agreement between JPMorgan Chase Bank, N.A. (formerly The Chase Manhattan Bank, N.A.) and the Company, including the forms of Master Note, dated December 21, 1994, filed March 15, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 10.2210.27 | | Commercial Paper Dealer Agreement between the Company and Goldman, Sachs & Co. (formerly Goldman Sachs Money Markets, L.P.) dated December 21, 1994, filed May 9, 2007 as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, is incorporated by reference. (SEC File No. 1-7845)001-07845) |
| | | Exhibit No.
| | Document Description
| 10.23 10.28 | | Commercial Paper Dealer Agreement between the Company and J.P. Morgan Securities, Inc. (formerly Chase Securities, Inc.) dated December 21, 1994, filed May 9, 2007 as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 10.2410.29 | | Commercial Paper Dealer Agreement between the Company and SunTrust Capital Markets, Inc. dated February 7, 2005, filed May 9, 2007 as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | 10.2510.30 | | Commercial Paper Dealer Agreement between the Company and Wachovia Capital Markets, LLC dated October 10, 2005, filed May 9, 2007 as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, is incorporated by reference. (SEC File No. 1-7845)001-07845) | | | | 12** | | Computation of Ratio of Earnings to Fixed Charges. | | | | 21** | | Schedule of Subsidiaries of the Company. | | | | 23** | | Consent of Independent Registered Public Accounting Firm. | | | | 24** | | Power of Attorney executed by members of the Company’s Board of Directors regarding this Form 10-K. | | | | 31.1** | | Certification of David S. Haffner, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 26, 2008.25, 2009. | | | | 31.2** | | Certification of Matthew C. Flanigan, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated February 26, 2008.25, 2009. | | | | 32.1** | | Certification of David S. Haffner, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 26, 2008.25, 2009. | | | | 32.2** | | Certification of Matthew C. Flanigan, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated February 26, 2008.25, 2009. |
| * | Denotes management contract or compensatory plan or arrangement. |
| ** | Denotes filed or furnished herewith. |
107136
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